And just like that. everything is crashing. Whether it is Asia, Europe, or even US futures, an entire generation of traders are waking up to something few have seen in the past 6 years: a very rare sea of red, only this time with the main difference that the perpetual backstop of all risk, the Fed and/or "Edward Quince", may not be there to halt the collapse.

As a result, everyone from algos, to E-trade babies, to experienced hedge fund professionals who had abandoned shorting as a hedging strategy in a world in which the Fed eliminated risk are stunned, unable to decide what to do in a market in which not everything goes magically up every day.

Case in point, the German DAX, the country which is at the forefront of Europe's slide into a triple-dip recession, which after hitting an all-time high just a few short months ago, has plunged to a one-year low, and after dropping over 2% today is just over 8800 and well below the psychological support level of 9000.

The US is not faring any better, with the ES breaking key support levels, and set to drag the Dow Jones to an open where it would be red for 2014. The only safe haven this morning? The 10 Year, which just dropped to a fresh 1 year low under 2.30%: but David Tepper said something about bubbles...

In other news, European stocks fall to almost 7-month low - the alleged reason: concern about clashes between Draghi and Schaeuble over what steps to take if the euro-area economy weakens, while WTI crude, brent continue slump. Draghi said late yesterday there are signs Europe’s recovery is losing momentum. Schaeuble warned against QE. Treasuries drop for 1st time in 5 days. Yen heads for 1st weekly gain since August as concern about global economy boosts demand for haven assets. Asian shares fall, metals decline.

Market Update

• S&P 500 futures -0.6% at 1913.5
• Stoxx Europe 600 down 1%.6 to 321.34
• US 10Y yield down 2bps to 2.30%
• German 10Y yield little changed at 0.9%
• MSCI Asia Pacific down 1.6% to 136.56
• Gold spot unchanged at $1222.3/oz

A quick rundown of overnight markets:

Bund futures opened in minor negative territory and fell for the first few hours of European trade after T-notes tripped sell-stops on the way through yesterday’s lows of 126.11. However, softer stock markets and a warning that the German economy ministry are to cut their 2014 and 2015 growth forecasts to 1.25% (from 1.8% and 2.0% respectively) helped close the opening gap in Bunds, heading back toward contract highs of 150.78.

The DAX future hit the lowest level since October 2013 as the near-term correction continued after yesterday’s sharp sell-off on Wall Street. The S&P 500’s 2% fall has knocked the DAX future below 8800 – a level not broken since late 2013. Unsurprisingly, the materials and energy sectors perform particularly poorly as commodities prices continue to slide. Elsewhere, chipmakers have fallen sharply on Microchip Technology’s lower-than-expected earnings update yesterday, which sent their shares lower by 11% in after-market trade. As such, Infineon Technology as well as STMicroelectronics have suffered today.

In FX, GBP/USD trades with losses of over 50 pips, with the pair back below the 1.61 handle as UK political risk re-emerges and modest USD strength weighs on the pair. This follows the Clacton by-election, where (alongside expectations) UKIP gained their first seat in UK Parliament. However, UKIP's share of the vote was far greater than forecast (60% vs. Conservative's 25%). Separately, the Henley & Middleton by-election cut Labour's lead over UKIP to just over 600 votes, raising fears that the anti-EU UKIP will gain a large portion of the votes in 2015's general election and could even form a coalition with another major party.

In commodities, overnight, the energy sector continued to come under selling pressure with WTI crude futures falling as much as 2.5% and currently look set to post their biggest weekly drop since June 2012. Brent crude futures also fell with prices touching their lowest levels since December 2010. The continued weakness in crude prices comes after Brent dropped below the USD 90/bbl handle for the first time in more than 2 years and WTI falling to a 22-month low, during yesterday's session. Ahead of OPEC’s next meeting on November 27th, analysts at Nordea say OPEC will probably cut supply target at November meeting by 500,000 bpd as demand for group's crude to be lower in 2015 amid booming US of supplies.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European markets play catch-up with yesterday’s sharp sell-off in the S&P 500, as the DAX future breaks below 8800 to erase all gains seen within the last 12 months
• Global markets remain nervous of an extended slump in growth and inflation, as the German economy ministry admit they will be forced to slash GDP growth expectations next week
• More Fedspeak due later today, with Plosser, George, Fisher and Lacker expected to reinforce the Fed’s expectations of a mid-2015 rate hike
• Speeches also scheduled from ECB members Constancio, Nowotny, Linde, Praet and Coeure in Washington D.C.
• Treasuries rise, 10Y headed for third consecutive weekly gain amid concern over global growth that pushed 10Y yields of Germany, France, Belgium, Spain,  Netherlands, Austria and Finland to record low yesterday.
• Positioning indicators suggest investors have moved closer to neutral from short in recent weeks, and Credit Suisse Options Sentiment Indicator gave first sell signal since May
• ECB’s Draghi and German Finance Minister Schaeuble differed over what further steps to take if the euro-area economy keeps weakening as the region came under renewed foreign pressure to revive growth
• Fed officials are hunting for new tactics to raise price increases to their target as slowing global growth, cheaper commodities and flat wages sound warnings that inflation is descending toward the danger zone
• Iran will sell its oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia as global crude benchmarks slide deeper into a bear market
• Hong Kong pro-democracy protest leaders called on supporters to flood the city’s streets today after the government called off talks aimed at ending the two-week standoff
• North and South Korea exchanged fire over one of the world’s most fortified borders for the second time in a week, at a time when the prolonged absence of Supreme Leader Kim Jong Un fuels concern about his grip on power
• The U.K. Independence Party, which wants Britain out of the EU, showed the extent of its reach by winning its first elected parliamentary seat in southeast England and almost taking another in the northwest
• Kurds defending Kobani risk running out of ammunition as Islamic State surrounds the town and Turkey controls their only outlet, according to a Kurdish lawmaker in Turkey and observers of the fighting in Syria
• Sovereign yields lower, led by peripheral Europe. USD weaker vs all G-10 peers. Asian and European stocks mostly higher. U.S. equity-index futures gain. WTI crude lower, gold and copper higher

US Event Calendar

• 8:30am: Import Price Index, Sept., est. -0.7% (prior -0.9%)
• Import Price Index y/y, Sept., est. -1.4% (prior -0.4%)
• TBA: Monthly Budget Statement, Sept., est. $82b (prior $75.1b)
• 9:00am: Fed’s Plosser speaks in New York
• 1:00pm: Fed’s George speaks in McCook, Neb.
• 2:08pm: Fed’s Fisher speaks in Dallas
• 3:00pm: Fed’s Lacker speaks in Chicago

DB's Jim Reid Concludes the overnight recap

The market is not showing the poise of a ballerina at the moment and its fair to say that volatility is well and truly back. No sooner had we seen the best day since October last year for the S&P 500, last night we saw the worse day since April as the index dropped 2.07%. With volatility we also saw the VIX index spike to 18.76 (highest since February 2014). Eurozone growth concerns came back to the fore following the biggest monthly decline in German exports in over 5 years (-5.8% v -4.0% expected) as well as a rather tepid response to Draghi’s comments at a Brookings Institution conference yesterday. Several European Government 10 year bond yields hit fresh multi-century all time lows again yesterday reflecting the heightened concerns in the market.

The ECB President said that there are signs that the European economic recovery is losing steam whilst at the same time reaffirming that the ECB is ready to alter the size and/or composition of its unconventional measures. He also reiterated his pledge towards price stability and lifting inflation from current levels. Draghi said that the current programmes in place should have a sizeable impact on the ECB’s balance sheet and eventually push inflation back to 2% by 2016 or 2017. On balance sheet size whilst he wasn’t specific on a target he said the ball park was for the ECB’s balance sheet to return to levels seen in early 2012 when it was at least around EUR700bn higher than where it is currently. Draghi called for more flexibility around government’s fiscal policy (for those who can afford to), but was met with an opposing view from Germany’s finance minister Wolfgang Schaeuble who urged for continued budgetary discipline. Although Draghi was seemingly more dovish than at his press conference last week the market seems to be getting frustrated that the ECB's next move could still be some way off.

Draghi’s comments were a reminder of the challenges in Europe following a bad week for global growth expectations including various growth forecast downgrades from the World Bank/IMF earlier this week. The subdued outlook is worrisome and the price action in various commodities complex of late is broadly a reflection of this. Dollar strength is clearly a headwind too but crude oil has been on a downtrend for some time now. Brent is seeing further declines overnight during the Asian session and is around US$88.6/bbl as we type. This puts Brent at the lowest since December 2010 and officially into bear market territory after having corrected over 21% since the highs this summer. WTI has also come off around 19% since the highs in June. The U.S. Energy Information Administration reduced its forecasts for demand growth on Tuesday so there will be some attention on the OPEC’s monthly report today.

Back to the capital markets, the S&P 500 sell-off yesterday was driven by broad based declines across sectors and it shouldn’t be overly surprising to see Energy (-3.70%) being one of the worst performer given the Oil market woes. US credit markets also responded to the weaker risk tone yesterday. The CDX IG S23 contracts finished the day nearly 3bps wider. The CDX HY index was relatively resilient (down half point) although US HY cash curves traded heavy with bonds down anywhere between ¾ to 1 ¼ points on the day.

Staying on US HY, there has been some good news overnight as the recent tide of outflows seems to be taking a pause for now. The asset class experienced a very modest inflow of US$137m (0.05% of AUM) for the week ended 8 October. Whilst modest this is still materially better than the US$2.3bn of outflows we saw the week prior to this. The latest inflows also brings the four week moving average outflows down to US$1.1bn from around US$1.5bn in the prior week. Things were less rosy for European HY though with outflows continuing for the second week. European HY saw outflows of US$430m (1.1% AUM) during the week ended 8 October bringing the four week moving average to US$269m from US$234m in the week prior to this. Our updated US and European HY fund flow charts included in the PDF.

Looking at our screens this morning the Asian session is largely following the negative lead from the US. Bourses in Japan, China, Hong Kong and Korea are down -1.5%, -0.6%, -1.6% and -1.5%, respectively. In Hong Kong, the government has called off a scheduled meeting because they felt the talks would not lead to a constructive outcome after movement groups called for more rallies (SCMP). A HKEJ article said that the Hong Kong-Shanghai stock connect scheme may be delayed by the protests. Asian IG credit spreads are 2-3bps wider whilst HY bonds are also softer across the board.

US Treasuries are little changed with the 10yr at around 2.31% although off the intraday lows of 2.277% during the last 24 hours. The risk-off tone is perhaps offering a bid to rates although there were no lack of Fed sound bites from yesterday’s line up to confuse the market. On the hawkish end of things we had Bullard saying that inflation will go above the Fed’s 2% target in 2015 on the back of a strongly performing US economy. Bullard is not worried about Dollar strength having that much impact on inflation and said the Fed continues to be on track for its first tightening at the end of Q1 2015. Fed’s Williams added to the debate saying that he thinks that a mid 2015 lift-off is a 'reasonable guess' and also highlighted the risk of a premature tightening. Vice Chair Fischer also gave us some insights of what ‘considerable time’ means by saying that it could mean anything from two months to a year. So it seems that even the bid/offer on Fed guidance is getting illiquid!!!

Looking at the day ahead we have a fairly light calendar for data watchers. We have more Fed speeches lined up with Fed Presidents Plosser, Fisher and George scheduled at some point later today. In Europe we have August industrial production reports from France and Germany which will be important given recent data. The IMF annual meetings will continue into the weekend so expect lots of sound bites. One highlight is the Fed's Vice Chair Fischer speaking on the global economy on Saturday.