Goldman Sachs warns of 'dead bodies' after market turmoil (Ambrose Evans-Pritchard)

  The global currency storm of the past week is starting to infect the corporate bond markets and may prove harder to contain than last year's May sell-off, Goldman Sachs has warned.

  By Ambrose Evans-Pritchard -- Telegraph/UK

  March 6, 2007 -- The global currency storm of the past week is starting to infect the corporate bond markets and may prove harder to contain than last year's May sell-off, Goldman Sachs has warned.

  Jim O'Neill, the bank's chief global economist, said investment firms playing the "carry trade" had been caught on the wrong side of huge leveraged bets against the Japanese yen.

  "There has been an amazing amount of leverage on currency markets that has nothing to do with real economic activity. I think there are going to be dead bodies around when this is over," he said. "The yen carry trade has reached 5pc of Japan's GDP. This is enormous and highly risky, as we are now seeing."

  Stock markets around the world continued to slide Monday as investors scrambled to liquidate bonds, equities and weaker currencies across the board. Japan's stock market slumped 3.3pc, with falls of 3.7pc in India, 4.6pc in Malaysia and 4.7pc in Moscow, where oil and commodity shares tumbled on fears of a global slowdown.

  London closed down 57.5 points at 6058.7 and America's Dow Jones was down 66 points in afternoon trading. Copper prices are down 9pc in a week. Base metal inventories are rising fast.

  "The unwind of the carry trade has had an impact across emerging markets," said Kingsmill Bond, a strategist at Deutsche Bank. "The capital exporters in Asia and the Middle East have been relative safe havens: the worst hit are Latin America, South Africa, Turkey and eastern Europe."

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