While there is not much to add to our previous market wrap from earlier this morning, now that traders in the US are arriving at their desks, the selloff appears to be accelerating and as Bloomberg notes, "a selloff in fixed income is starting to snowball into a global market rout"driven by what Reuters dubbed "growing concerns that global central banks' commitment to the post-crisis orthodoxy of super-low interest rates and asset purchase programs may be waning."

It appears Kuroda broke markets once again, the reason being the central bank insistence to steepen yield curves to avoid suffocating banks and pension funds, while keeping the broader easing theme on hold even as it means trillions in longer-dated bonds now find themselves in limbo as frontrunning central bank purchases is no longer possible. So what do traders do? Why they sell of course.

As Bloomberg also adds, "shares in Europe and Asia dropped the most since the aftermath of the U.K. Brexit vote in June, and U.S. stock-index futures fell as concern spread that central banks are preparing to wean markets off unprecedented stimulus. Treasuries extended their slide into a fourth day as the U.S. prepared to sell three- and 10-year notes, and the yield on benchmark German bunds reached the highest since Britain’s decision to exit the European Union was confirmed. Oil sank toward $45 a barrel as nickel tumbled the most in four weeks. The yen advanced and the won slid. Samsung Electronics Co. tumbled after airlines and regulators warned against the use of its Note 7 smartphones."

Come to think of it, it really is starting to look like a bloodbath, especially considering the dominant color in the following market summary table.

Last week Zero Hedge first warned that the incipient selloff in long-dated bonds, which the market had ignored for months, would spill over into all global markets and products, and sure enough that is precisely what is taking today, continuing Friday's sell off. Starting with a tumble in longer-dated government bonds, "financial markets have been jolted out of a period of calm by an uptick in concern over the outlook for central bank policies. Lael Brainard, a member of the Federal Reserve’s board of governors, speaks Monday in Chicago, days after Fed Bank of Boston President Eric Rosengren said the economy could overheat."

Not helping risk sentiment, the ECB last week played down the prospect of further stimulus and Bank of England Governor Mark Carney said the chances of a U.K. recession had fallen. With the the Bank of Japan set to unveil the results of a comprehensive policy review at its its Sept. 20-21 meeting, traders are on tenterhooks especially after a Friday Reuters report that the BOJ is now actively considering steepening the JGB yield curve.



“It was only a matter of time for this selloff,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany. “We had seen post Brexit a really notable rebound in markets even if fundamentals hadn’t improved accordingly. I expect some more downside going forward. There’s also the risk of the Fed meeting coming up.”

As a result, the MSCI All-Country World Index of shares fell for a third day, dropping 0.8 percent in early Europe trading. All major western-European stock markets dropped as the Stoxx Europe 600 Index lost 1.7 percent. The VStoxx Index tracking euro-area equity volatility headed for its biggest jump since January, signaling a return of instability after an extended period of stable prices. Miners posted the worst performance of the 19 industry groups on the Stoxx 600 today as commodity prices retreated. Energy companies slid as oil extended declines after U.S. producers increased drilling. Linde AG tumbled 8.4 percent after saying it terminated talks for a combination with Praxair Inc. EON SE slid 15 percent after spinning off its Uniper SE unit. RWE AG fell 3.1 percent after confirming plans for an initial public offering of Innogy SE shares in the fourth quarter. SVG Capital Plc jumped 15 percent after HarbourVest Global Private Equity Ltd. offered to buy it for about 1 billion pounds ($1.3 billion) in cash.

Emerging Markets allowed no safe haven today, and the MSCI Emerging Markets Index slid 2.3%, the most since the June 24 Brexit vote. The gauge has tumbled 4.2% in two days, poised for a one-month low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 4 percent, the most in seven months, and South Korea’s Kospi lost 2.3 percent. Samsung plunged 7 percent after U.S. regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them. Aviation authorities and airlines have called on passengers to stop using the gadgets during flights. The company announced a recall of millions of big-screen smartphones on Sept. 2 after about three dozen of them were found to have batteries that caught fire or exploded.

S&P 500 Index futures slipped 0.7%, and were aggressively propped up by the key support level of 2,100.

Crude oil was down 1.7%, flirting with $45, after Friday's Baker Hughes report that U.S. active rigs rose once again, while bets on falling prices also increased. OPEC’s monthly market report due at 6:45am ET.

But the asset class currently in the driver's seat remain bonds, where the selloff at the long end continues. Germany’s 10-year yield climbed four basis points, or 0.04 percentage point, to 0.05 percent, and touched the highest level since June 24. Spanish bonds with a similar maturity dropped a fourth day, pushing the yield to the most in seven weeks. Yields on 10Y Treasuries rose two basis points to 1.69 percent, before sales of a combined $44 billion of three- and 10-year notes. The three-year noes being sold later on Monday yielded 0.95 percent, an increase of 10 basis points compared with the previous auction on Aug. 9. Brainard, seen as a leading opponent of rate increases for much of the past year, is the last scheduled Fed speaker before the self-imposed blackout period running up to the Sept. 20-21 policy meeting. Any hawkish shift in her rhetoric may stoke volatility in financial markets, which on Friday put the probability of a hike in borrowing costs this month at 30 percent. Ten-year yields in Australia surged nine basis points to 2.05 percent, after gaining 10 basis points on Friday, and that for New Zealand debt with a similar due date jumped 11 basis points to 2.47 percent. Japanese government bonds with maturities of less than a decade advanced and longer-dated securities declined. The moves follow a Reuters report on Friday that said the Bank of Japan was studying options to steepen the nation’s yield curve. The cost of insuring corporate debt against default jumped the most since late June. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies climbed four basis points to 72 basis points. A measure of swaps on junk-rated corporate issuers rose 16 basis points to 332 basis points. Both gauges are at the highest in about two months.

Market Snapshot

S&P 500 futures down 0.6% to 2104

Stoxx 600 down 1.8% to 339

FTSE 100 down 1.6% to 6670

DAX down 2% to 10366

German 10Yr yield up 4bps to 0.05%

Italian 10Yr yield up 4bps to 1.29%

Spanish 10Yr yield up 2bps to 1.1%

S&P GSCI Index down 0.8% to 351.9

MSCI Asia Pacific down 2.1% to 137

Nikkei 225 down 1.7% to 16673

Hang Seng down 3.4% to 23291

Shanghai Composite down 1.8% to 3022

S&P/ASX 200 down 2.2% to 5220

U.S. 10-yr yield up 2bps to 1.69%

Dollar Index down 0.08% to 95.26

WTI Crude futures down 1.7% to $45.12

Brent Futures down 1.4% to $47.34

Gold spot up less than 0.1% to $1,329

Silver spot down 0.2% to $19.02

Global Headline News

Global Stocks Sink With Bonds, Commodities as Fed Angst Builds: Fed’s Brainard is among officials due to speak on Monday

Linde, Praxair Agree to Terminate Discussions on Merger: Deal would’ve created world’s biggest industrial gas supplier

HP Inc. Buying Samsung’s Printer Business for $1.05b: HP seeking to become a bigger player in copiers and printers

North Korea Seen Ready to Conduct New Nuclear Test at ‘Any Time’: ‘High’ probability next detonation could come this year

Clinton, Suffering From Pneumonia, Cancels Trip to California: Incident fuels speculation about Clinton’s health

Perrigo Targeted by Activist Starboard With New 4.6% Stake: Activist critical of missteps since drugmaker rebuffed Mylan

Starbucks New Tea Line Chases China’s $9.5b Tea Market: Launches tea products in Asia-Pacific after U.S. growth

Looking at regional markets, we start in Asia where stocks traded negative across the board following Friday's US sell-off, where all 3 major indices slumped over 2% following hawkish Fed rhetoric and weakness in commodities. ASX 200 (-2.2%) printed fresh 2-month lows, weighed on by commodity weakness in which WTI crude futures declined over 3%, while a firmer JPY dampened hopes of a rebound in Nikkei 225 (-1.7%). KOSPI (-2.3%) fell below 2,000 amid continued geopolitical concerns and losses in Samsung Electronics. Shanghai Comp (-1.9%) and Hang Seng (-XX%) conformed to the widespread negative tone in the region, with the latter suffering from an increase in Hong Kong money market rates after the 3-month HI BOR gained the most since February amid speculation that the PBoC could be intervening in the CNH to prevent CNY depreciation ahead of the first Special Drawing Rights (SDR) operation at the start of next month. 10yr JGBs fluctuated with early support seen as the downbeat tone across equity markets increased demand for safety, however, prices then reversed aggressively in late trade following the BoJ's buying operations which was for a relatively reserved amount.

Top Asian News

Traders Most Bearish on Yuan in Four Months as Loan Rates Surge: Bonds extend drop as 10-year yield rises to 7-week high

China Proposes Tighter Bond Market Leverage Rules After Defaults: An investor’s repo holdings can’t exceed 70% of bond holdings

Bond Rout in Japan Will Pass, Says Analyst Who Picked Rally: Falling liquidity exposes market to spike in yields, Sano says

Ex-SAC Trader Said to Shut Hedge Fund Backed by Alibaba Founders: Pinyin is led by Bazarian, who worked at SAC for 10 years

Samsung Drops After Warnings to Stop Using Note 7 Phones: Global aviation authorities warn against use while on planes

Friday's selloff in the US remains at the forefront of traders' minds today, with the downside filtering through to Europe, with all major European indices in the red (Euro Stoxx: -2.3%). In terms of a sector breakdown, all sectors reside in negative territory, with financials and materials among the worst performers. E.on (-12.5%) remain the worst performer, given that today sees the first day of trade for Uniper, combined with reports of higher liabilities for nuclear waste storage. Also of note, Linde (-8%) are among the worst performers after their merger with Praxair fell through. Fixed income markets have also continued their decline, with Bund yields soaring further into positive territory, with the US weighed on by a significant quantity of supply, in the form of USD 24b1n 3yr notes and USD 20b1n 10yr note auctions.

Top European News

Deutsche Bank CEO Says Asset Management Is ‘Essential Part’; Cryan tells staff not to become distracted by ‘speculation’

Basel Capital Revamp Endorsed Without Assurance Sought by Europe: Basel aims to finish capital framework revision this yr

HarbourVest Offers to Buy SVG Capital for About $1.3b: SVG shareholders will receive 650p in cash for each share they hold

Carney to Assess Post-Brexit Strength as BOE Rate Seen Unchanged: BOE will announce policy decision on Thursday

EON Loosens Grip on Old Power Plants as Uniper Starts Trading: Uniper starts trading at EU10.015/share in Frankfurt

AB Foods Drops as Primark’s Summer Slowdown Prompts Selloff: Primark’s same-store sales declined about 2% in 4Q

Schaeuble Goes Global to Crack Financial Transaction Tax Dilemma: Austria’s Schelling says decision needed in October

Volkswagen Eyes Bond Sale as Carmaker Seeks to Move Past Scandal: Has ‘pretty good handle’ on scandal’s financial risk

In FX, the Bloomberg Dollar Spot Index fluctuated near a one-week high before Brainard’s speech, with regional Fed chiefs for Atlanta and Minneapolis also lined up to speak on Monday. The yen appreciated 0.6 percent versus the greenback. There’s “growing caution over a rate hike as the day of the Fed’s decision draws closer,” said Masashi Murata, a currency strategist at Brown Brothers Harriman & Co. in Tokyo. “Markets had been too confident that a hike wouldn’t happen. But global economies are not in a critical phase, so there’s a limit to selling on risk aversion. Money will eventually seek yields and underpin high-yielding currencies.” The won slumped 1.4 percent, the worst performance among major currencies, after Yonhap News reported that U.S. and South Korean intelligence authorities see a high chance that North Korea will conduct an additional nuclear weapons test after holding one on Friday. The MSCI Emerging Markets Currency Index slid 0.4 percent, leaving it down 1.3 percent over two days.

In commodities, the Bloomberg Commodity Index fell 0.6 percent, after sliding 1.3 percent on Friday. Crude oil sank 1.6 percent to $45.14 a barrel in New York after American producers increased drilling, adding to a glut. U.S. rigs targeting crude rose to the highest since February, according to data from Baker Hughes Inc. Nickel slid 3.4 percent in London, dropping for the first time in eight days, while tin tumbled by the most since May. Gold rose 0.1 percent, after retreating 1.6 percent over the last three sessions. Iron ore fell in China to the lowest since June amid speculation the nation’s policy makers will tighten property curbs and so cool demand for steel. Steps should be taken to restrain bubble-like expansion in the housing market, Ma Jun, chief economist of the PBOC’s research bureau, said in an interview with China Business News. Wheat in Chicago fell 0.7 percent to about $4 a bushel, approaching a decade-low of $3.8675 reached on Aug. 31. Money managers have their biggest-ever bet on price declines and a global stockpile estimate by the U.S. Department of Agriculture is forecast to still be at a record high after the figure is updated on Monday.

On today's calendar, with the FOMC blackout period taking effect from Tuesday the Fedspeak is frontloaded to today. Lockhart will speak at 1.05pm BST, Kashkari at 6pm BST and perhaps most significantly the uber dovish Brainard is scheduled to speak at 1.15pm Chicago time.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

Friday's selloff in the US remains at the forefront of traders' minds today, with the downside filtering through to Europe

Commodity currencies vs the JPY have been the primary target for risk sellers, and this has eventually weighed on USD/JPY which is now eyeing another test below 102.00

Looking ahead, highlights include comments from Fed's Lockhart and Brainard

Treasuries slightly lower in overnight in overnight trading with global equities drop amid concern that central banks are preparing to wean markets off unprecedented stimulus.

Week’s auctions begin with two events at 1pm ET with $24b 3Y notes, WI 0.945%; sold at 0.85% in August and $20b 10Y notes (re-opening), WI 1.675%; last sold at 1.503% in August, 72.2% awarded to indirect bidders was among highest on record;

Week’s auctions begin with two events at 1pm ET with $24b 3Y notes, WI 0.945%; sold at 0.85% in August and $20b 10Y notes (re-opening), WI 1.675%; last sold at 1.503% in August, 72.2% awarded to indirect bidders was among highest on record; Fed’s Brainard will begin speaking at 1:15pm ET in Chicago

The plunge in euro-area government bonds that has driven German yields to their highest level since the U.K.’s Brexit vote is unlikely to escalate into a full-blown rout, according to Charles Diebel, head of rates at Aviva Investors

The U.S. government should consider fiscal and regulatory reforms to boost economic growth because the scope for low interest rates alone to do so is limited, said Federal Reserve Bank of Minneapolis President Neel Kashkari

ABN Amro Group will cut as many as 1,375 jobs through 2020 as the Dutch lender begins to implement a 200 million euro ($225 million) cost-cutting plan announced last month

Money managers increased wagers on falling oil prices by the most in three months as a meeting between Russia and Saudi Arabia ended without specific measures to support prices

Oil extended declines following the biggest drop in more than a month after U.S. producers increased drilling as the market contends with an overhang of crude and fuel inventories

The central bank governors overseeing the Basel Committee on Banking Supervision backed the “broad direction” of the regulator’s bank capital-rule revamp, while stopping short of providing assurances sought by Europe on the overhaul’s impact

China should take steps to restrain bubble-like expansion in housing markets and tame excessive financial inflows into property, according to Ma Jun, chief economist of the People’s Bank of China’s research bureau

China has proposed measures to tighten leverage rules in the onshore bond market, highlighting concern that investors’ borrowings are overextended after a series of defaults

Democratic presidential nominee Hillary Clinton canceled a two-day trip to California after her campaign disclosed Sunday that she’s suffering from pneumonia. The cancellation followed Clinton’s abrupt departure from a Sept. 11 commemoration

US Event Calendar

8:05am: Fed’s Lockhart speaks in Atlanta

1:00pm: Fed’s Kashkari speaks in St. Paul, Minn.

1pm: U.S. to sell $24b 3Y notes; $20b 10Y notes in re- opening

1:15pm: Fed’s Brainard speaks in Chicago

6:30pm: Reserve Bank of Australia’s Kent gives Bloomberg Address in Sydney

DB's Jim Reid concludes the overnight wrap

After a tight Treasury range for well over a month and with the S&P 500 not having a more than +\- 1% move since July 8th (the longest run since April-July 2014), the peace was suddenly shattered on Friday. Starting with US rates, 2y and 10y yields closed up +1.2bps and +7.6bps respectively. The move for the latter in particular means that the 10y has now busted out of the 1.50%-1.60% range in style, closing at 1.676% and the highest yield since the Brexit referendum. It also makes for an impressive two-day move (+13.6bps) which is second only to the July 11th-12th move (+15.2bps) for the largest this year. It was a similar story in European bond markets where yields were up anywhere from 7-9bps. In fact Friday even saw 10y Bunds rise +7.3bps or a more eye watering +115% to close at +0.009% and in positive territory for the first time since July 15th (which they only managed to hold for 24 hours). This morning in Asia we’ve seen similar maturity yields in Australia, New Zealand and South Korea rise 5-9bps, although interestingly 10y JGB yields initially opened higher but have since retreated and are currently 1bp lower. 30y yields are however nearly 4bps higher and so the curve has steepened which fits in with recent headlines that the BoJ wants to maintain a comparatively steep yield curve.

It won’t come as much surprise to hear that it was a good day on Friday for the Greenback then with the USD index closing +0.33%. On the other side of the coin it was a rough day for emerging market currencies though with the likes of the Colombian Peso (-2.60%), South African Rand (-1.93%), Brazilian Real (-1.85%) and Russian Ruble (-1.25%) falling sharply. In equity land the S&P 500 (-2.45%) had its worst day since the post-Brexit reaction on June 24th and as a result the worst week since early February. High yielding dividend stocks were hit hardest on Friday with the likes of real estate, utilities and telecoms sectors all down well over 3%. Financials and specifically Banks did perform better given the steepening across yield curves. This was most evident in Europe where the Stoxx 600 tumbled -1.09% but the Stoxx 600 Banks index closed +0.30%. On a related note it was also interesting to see that the S&P 500 vs. US 10y Treasury yield 20-day correlation is now approaching the most negative (-0.520) in five years having traded with a positive correlation for most of 2016.

The risk off moves weren’t just confined to equity markets as credit spreads also blew wider. CDX IG finished over +4bps wider by the end of play while in Europe the iTraxx Main and Crossover indices were +3bps and +14bps wider. Meanwhile the VIX rose 40% and to the highest since June. Finally Oil (WTI -3.65%) had its worst day since July 13th while Gold (-0.78%), Silver (-2.91%) and the wider base metals market also had days to forget.

A big contributor to Friday’s collapse was the Fedspeak and in particular hawkish comments from Boston Fed’s Rosengren midway through the day. We’ll touch on his comments shortly but with that in mind and with the FOMC blackout period kicking in tomorrow it’s worth keeping a close eye on Fed Governor Brainard’s comments this evening at 6.15pm BST/1.15pm EST. As a reminder this scheduled event was only added very recently and there’s some suggestion that it could be used as an opportunity for the Fed to raise market expectations and give the FOMC some more wiggle room at the September meeting, given Brainard’s position as one of the most dovish committee members. We’ll also hear from Lockhart and Kashkari today, so it has the makings of another busy day.

Looking at the rest of markets this morning in Asia, it’s been a rough opening for risk where equity bourses are tracking Wall Street’s losses on Friday. There have been heavy falls for the Nikkei (-1.51%), Hang Seng (-2.38%), Shanghai Comp (-1.56%), Kospi (-1.77%) and ASX (-2.17%) while credit indices in Asia and Australia are 3-4bps wider. US equity index futures are also currently in the red. It’s worth noting that headlines this morning are also dominated by another story, that being the latest in the US presidential race where Democratic nominee Hilary Clinton has been diagnosed with pneumonia, hours after leaving a memorial event on Sunday. The health of both Clinton and Trump has been a talking point in the race and while this may end up being a largely irrelevant story in the grand scheme of things, and also in markets, it will be interesting to see if this causes any sharp swings in upcoming polls given that it is a subject which has divided opinions. One to watch.

Back to the Fed comments on Friday. The most notable was the chatter from Rosengren (voter) who is typically seen being a more dovish member of the Fed camp. Specifically he said that a ‘reasonable case’ can be made for a rate hike, helped by ‘modest increases in wages and salaries’ that ‘seem to me consistent with tightening in labour markets beginning to appear more strongly in the wage data’. Rosengren also added that ‘a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery’. DB’s Peter Hooper believes that Rosengren is pretty clearly in the September hike camp and his remarks, by themselves, should have moved the odds on September above 50/50.

Those odds did spike up to 38% from 28% following Rosengren’s comments, but some slightly more balanced Fedspeak which followed later in the session saw the September probability actually dip back down to 30% by the end of the day. Indeed it was Governor Tarullo who followed and maintained his usual dovish and cautious stance. He said that while he wouldn’t rule out a hike this year, he remains in the ‘show me’ camp, or in other words wants to see more evidence of firmer inflation. He said that ‘regardless of what measure you use, from my point of view, what is optimal right now is to look to see actual evidence that the inflation rate would continue to go up and would be sustained at around the target’, adding that ‘we’ve had so many false up and downs in the past’. The final comments came from the relatively centrist Dallas Fed’s Kaplan who said that the ‘Fed can to be patient and deliberate in its actions’ but that ‘I still believe that over the last several months the case has strengthened’.

Away from the Fedspeak, the small amount of economic data released on a Friday was largely a sideshow to what was going on in markets. Across the pond wholesale inventories were confirmed as being unchanged in July and so unrevised from the initial flash reading, while wholesale trade sales fell -0.4% mom. The Atlanta Fed revised down their latest Q3 GDP forecast to 3.3% from 3.5% while the NY Fed’s Q3 estimate was held at 2.8%. Prior to this in Germany a much weaker than expected exports reading in July (-2.6% mom vs. +0.4% expected) helped to lower the trade surplus and continued the recent run of weak data in the country. Over in France industrial production was softer than expected in July (-0.6% mom vs. +0.3% expected) while here in the UK the July trade deficit narrowed a little less than expected.

Turning over to the week ahead now. It’s a super quiet start to the week today outside of the Fed speak detailed below with no real significant data due to be released. Tomorrow kicks off in China where the August data dump is due including retail sales, fixed asset investment and industrial production. During the European session tomorrow we’ll get the final August CPI revisions in Germany along with the September ZEW survey. There’s important data due to be released in the UK tomorrow too with the August CPI/RPI/PPI readings due. In the US tomorrow we’ll get the August NFIB small business optimism reading, along with last month’s monthly budget statement. We start in Japan on Wednesday where the final revision to industrial production in July will be made. We then move onto France where the final August CPI revisions are made before the UK comes under the spotlight again with the latest employment report. Euro area industrial production in July will also be released. It’s quiet once again in the US on Wednesday with the only data due being the import price index for August. It’s a busier day all round on Thursday. In Europe we’ll again get more important data out of the UK, this time in the form of the August retail sales data. Euro area trade data and the final August CPI number will also be released before all eyes turn to the BoE meeting at midday. During the afternoon session in the US we’ll get August retail sales, Philly Fed business outlook in September, PPI in August, initial jobless claims, empire manufacturing in September, industrial and manufacturing production in August and business inventories in July. So hold your breath for that one. Closing the week on Friday there’s little to highlight in Asia or Europe. In the US however we’ll get the August CPI report along with a first look at the University of Michigan consumer sentiment survey for September.

Away from the data, as noted earlier with the FOMC blackout period taking effect from Tuesday the Fedspeak is frontloaded to today. Lockhart will speak at 1.05pm BST, Kashkari at 6pm BST and perhaps most significantly the uber dovish Brainard is scheduled to speak at 6.15pm BST. Away from that the ECB’s Lautenschlager speaks tomorrow and the EU’s Juncker speaks on Wednesday.