While Asian trading overnight started off on the right foot, chasing US momentum higher, things rapidly shifted once Europe opened as attention moved back to global growth fears, global central banks losing credibility, as well as miners and the ongoing Volkswagen fiasco. The first sign that not all is well was the latest plunge in Glencore shares tracking the recent selling in copper which is back to 2 week lows, which two weeks after a "doomsday" capital raise crashed to fresh all time lows, down 10% on the session, and down 80% since the 2011 IPO. The general risk off tone was exacerbated by a steep selloff in the all important carry pair, the USDJPY, which plunged just as Europe opened, and has been trading below 120 for the past several hours, in turn pushing both the EuroStoxx and E-minis well lower. But the knockout punch came just under an hour ago, when Volkwsagen - already the focus of everyone's attention - announced it plans to set aside 6.5 billion euros ($7.3 billion) in the third quarter to cover the costs of addressing irregularities in diesel engines installed in 11 million vehicles worldwide, as the scandal that started in the U.S. widens. "Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines,” the Wolfsburg, Germany-based company said in statement. The manufacturer said it will adjust its earnings forecasts for 2015 accordingly. VW shares plunged for a second day after the announcement. Bloomberg adds that Germany, France, South Korea and Italy were among countries on Tuesday that said they would look further into revelations that VW rigged diesel vehicles to pass emissions tests in the U.S. That comes as the U.S. Justice Department begins its own probe into the matter, according to two U.S. officials familiar with the inquiry. "The scandal has grown since the U.S. Environmental Protection Agency revealed on Friday that VW had cheated on the lab tests, exposing the company to as much as $18 billion in fines. The unfolding scandal brought an apology Monday from VW’s top U.S. executive, who vowed to win back the trust of consumers." As a result of the latest profit warning, Volkswagen shares dropped as much as another 20% on Tuesday following Monday's 19% plunge, losing well over 30% of its market cap in the past 2 days, or over €30 billion - more than the market cap of French carmakers Peugeot and Renault combined. It was not just Volkswagen's stock: the A2/A-rated company's one-year probability of default increased significantly to 0.52% from 0.13% at the start of the year, according to Bloomberg. This default probability puts Volkswagen in highest-rating bracket of sub-investment grade (HY1) for first time since 2010. The chart below shows the surge in VOW CDS in the last two days: And to think - if only Volkswagen's willing carelessness had just led to the deaths of just under 200 people like in GM's case, none of this would matter. As a result of the above, both European stocks and US equity futures were trading at their lows of the session, with Dow futs down 250, and the S&P down 31 to 1932, a drop of 1.6% so far in thin trade. A closer look at Asian markets reveals that these traded higher initially, following the positive close on Wall Street, after energy prices rebounded. ASX 200 (+0.7%) led the gains amid outperformance in the energy sector, while the Shanghai Comp. (+0.9%) is set for its longest winning streak in a month, as margin debt rose for the third time in 4 days and reports that London and Shanghai are to conduct a feasibility study in regards to a link between their respective exchanges. Japanese markets remained closed due to a national holiday. European equity markets reside firmly in negative territory paring much of the gains seen yesterday. On a sector specific breakdown, materials names have weighed on major indices as EU coal for 2016 falls below USD 50 as well as continued weakness today in copper. Whilst Volkswagen has seen a continuation of yesterday's weakness, dragging Porsche lower as well amid news that the DoJ are to extend the probe to Audi and Porsche vehicles, with both companies among the worst performers in Europe. Also of note, the IBEX continues to underperform its counterparts ahead of the key risk event of the Catalan elections scheduled to take place on Sunday. Elsewhere, fixed income markets have seen a bid this morning, bolstered by a flight to safety amid weakness in equities, with participants also concerned that Fed speakers since Thursday's rate decision have reiterated expectations for a rate lift off this year, despite concerns that the economy is not ready. This has seen Bund Dec'15 futures trade higher by around 50 ticks, with T-Notes and Gilts moving in tandem with the German benchmark. While in terms of corporate bonds, Volkswagen's hybrid bond has fallen by over 4 points this morning to their lowest intraday levels on record. In FX markets there has been rangebound trade, with JPY among the outperformers, benefitting from the aforementioned safe-haven bid, while EUR initially edged lower as European participants came to their desks to see EUR/USD take out yesterday's low at 1.1182 with 100DMA eyed on the downside at 1.1149. The USD has traded relatively flat overnight (USD-index +0.1 %) with the EUR weakness and JPY strength balancing out against the USD. In commodities, gold traded flat overnight as the precious metal held near yesterday's lows, after the continued rebound in the greenback post-FOMC weighed on prices. Elsewhere, copper prices were mildly pressured and traded at 2 week lows, while the energy complex has come under selling pressure after yesterday's rally and ahead of today's API crude oil inventories (Prey. -3100k). Looking ahead, today's data slate is relatively light, with more housing market data due later with the FHFA house price index, as well as the Richmond Fed manufacturing activity index. Fedspeak wise Lockhart is due to speak again, addressing an audience on the US economy. Bulletin Headline Summary from RanSquawk and Bloomberg European equity markets reside firmly in negative territory, weighed on by miners and carmakers FX markets today have seen relatively rangebound trade with JPY among the outperformers, benefitting from a safe-haven bid Looking ahead, today's most notable highlights include US API crude oil inventories and comments from BoE's Shafik and Fed's Lockhart. Treasuries gain as plunging commodities spur losses in stocks amid concern global economy is slowing; week’s auctions begin today with $26b 2Y notes, WI 0.725% vs. 0.663% in August. Asian Development Bank lowered its overall forecast for developing Asia to 5.8% from 6.3% as waning Chinese demand for commodities hurt exporters around the region. China’s forecast was lowered to 6.8% from 7% Plunging turnover and the world’s wildest price swings mean that China’s stock market just keeps getting uglier for investors France’s economic recovery has shown signs of fading and data this week will provide the latest clues as to whether a summer soft patch risks becoming more ominous Volkswagen AG plans to set aside EU6.5b in the 3Q to cover the costs of addressing irregularities in diesel engines installed in 11 million vehicles worldwide, as the scandal that started in the U.S. widens Swiss watch exports fell in August, heading for the first annual decline in six years amid signs that competition from Apple Inc.’s smartwatch may be denting demand for low-end timepieces Sovereign 10Y bond yields lower. Asian and European stocks decline, U.S.equity-index futures plunge. Crude oil slides, WTI -2.5%, Brent down 1.6%; copper -2.5%, gold down 3% US Event Calendar 9:00am: FHFA House Price Index, July, est. 0.4% (prior 0.2%) 10:00am: Richmond Fed Mfg Index, Sept. 2, est. 2 (prior 0) 1:00pm: U.S. to sell $26b 2Y notes 6:30pm: Fed’s Lockhart speaks in Montgomery, Ala. DB concludes the overnight event wrap Markets are trading to the beat of the Fed at the moment and following the more hawkish weekend Fedspeak, along with comments from Atlanta Fed President Lockhart yesterday, Treasury yields and the Dollar leapt higher while equity markets staged a modest rebound from the late Thursday and Friday sell-off. Markets still feel some way from a sense of post-FOMC calm though with intraday volatility still a feature throughout equities in particular at the moment. Yesterday was another example with a +1% gain in the S&P 500 wiped out shortly after the European close, before the index then recovered into the close to finish up +0.46%. Onto yesterday’s Fedspeak firstly. Lockhart added to some of more hawkish rhetoric, reiterating comments from his committee members in stating that the decision to hold was a ‘close call’ and that his vote to hold was based on ‘prudent risk management around recent and current market volatility’. He went on to say that ‘as things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment’. Pining down his timing expectations, the Fed official said that he was confident that the much-used phrase ‘later this year’ is still operative. Lockhart did go on to say that the sources of uncertainty that fueled financial market volatility represent a risk factor to the US economy, but much like the views of his colleagues at the weekend, countered this with his belief that the domestic economy appears to be ready for the beginning of normalization. Treasury yields nudged higher on the comments, the 10y benchmark finishing up 6.8bps at 2.202% while the greenback extended its gains with the Dollar index up over a percent yesterday. The various Fedspeak has done little to sway October liftoff expectations however with the market still pricing in just a 20% probability this morning, unchanged from Friday’s closing level. Markets in Asia have largely followed the US lead from yesterday with modest gains across the board. In China the Shanghai Comp (+0.65%) and CSI 300 (+0.70%) are both up at the midday break ahead of President Xi Jinping’s visit to the US. Brokerages are also leading the gains on the back of reports that feasibility studies are set to commence on a possible Shanghai-London stock connect. Turnover on mainland bourses continues to plummet however with the value of shares traded falling to $90bn a day from a high of $380bn a day back on May 28th and over $200bn just prior to the Yuan devaluation. Elsewhere this morning, it’s been a better start for the Hang Seng (+0.72%), Kospi (+0.45%) and ASX (+0.44%). Asia credit indices are largely unchanged, while S&P 500 futures are currently down 0.2%. Moving on, with equity markets choppy again yesterday, the relatively more stable session in rates was enough of a green light for primary market activity to get underway again for US credit. Twelve deals priced yesterday across the corporate and financials space, raising nearly $16bn with estimates of a fairly chunky calendar for the rest of the week ahead. The activity in credit markets was in stark contrast to what was a quiet day for economic data. US existing home sales for August was the highlight of a sparsely populated calendar, although the data disappointed with sales falling 4.8% mom in the month (vs. -1.6% expected) to an annualized rate of 5.31m (from 5.58m). That saw the level of home sales drop off their 8-year high that we reached back in July.Instead, it was the various comments from Central Bankers that’s dominating the newsflow at present. As well as Lockhart, we also heard from St Louis Fed President Bullard once again, speaking on CNBC. The Fed official largely repeated his weekend comments, pushing that there is a ‘powerful case to be made’ to normalize interest rates and that the case ‘is not complicated’. Bullard also appeared to be less concerned around events in China, saying that the chance of a hard landing was a ‘long shot’, while downplaying concerns about the impact of slowing Chinese growth on the US economy.There were also some comments out of the ECB yesterday. Board member Praet said that the economic recovery in the Eurozone remains fragile but that the ECB would ‘do what’s necessary’ should the inflation objectives be at risk. Governing Council member Nowotny, commenting on the Fed decision last week said that the decision was not an easy one and instead stressed the importance of the point raised by the Fed of the path of interest rate hikes, rather than timing of the first move. Meanwhile, the Bank of Italy’s Chief Economist Gaiotti fired a warning shot at the ECB, noting that the downside risks for medium term growth and inflation have increased before warning that the ECB should strive not to ‘fall behind the curve’ and that the weakening global economy calls for a ‘decisively supportive monetary stance’. Wrapping up the rest of the price action yesterday. A late rally in Chinese equities post the midday break yesterday helped contribute to a better day for European equity markets also. The Stoxx 600 closed up +0.86%, while the Dax finished +0.33%. Sovereign bond markets largely mirrored the moves in the Treasury market. 10y Bunds finishing up a couple of basis points at 0.682%. It was a better day for commodities on the whole yesterday too. Having declined in five of the previous six sessions, the Bloomberg commodity index (+0.95%) bounced back in yesterday’s session. Much of this was due to a rebound for Oil markets as WTI rose 4.48% and wiped out much of Friday’s steep leg lower on the back of the latest Baker Hughes rig count which showed a drop in the number of operating rigs. It’s another quiet day ahead of us for economic data. In Europe we’ve got Euro area consumer confidence and the UK CBI industrial trends survey and public sector net borrowing print due up. Over in the US this afternoon there’s more housing market data with the FHFA house price index, while shortly after we’ll get the Richmond Fed manufacturing activity index. Fedspeak wise Lockhart is due to speak again, addressing an audience on the US economy.