Portugal

Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.

• Markets on edge as policymakers flex muscles (Reuters)
• European shares recover from rough ride (Reuters)
• For Stock Markets, the Moment When Humans Matter (WSJ)
• Puerto Rico's PREPA, bondholders have framework for deal (Reuters)
• Hundreds of migrants protest at Budapest station, want to go to Germany (Reuters)
• New Whale Seen Moving Tokyo Markets (BBG)

It’s been noticed more than a few times that there aren’t many substantive differences between the Republicans and Democrats. What they have in common - at least the mainstream varieties - is a desire to use the state to shape society in whatever way they see fit. As Andrew Napolitano put it, "We have migrated from a two-party system into a one-party system, the big-government party. There’s a democratic wing that likes taxes and wealth transfers and assaults on commercial liberties and there’s a republican wing that likes war and deficits and assaults uncivil liberties." And both parties love prohibition, just of different things.

“Ten years ago no one in the art market paid close attention to these corrections in the stock market. Now clients respond immediately."

After a 5 day tumbling streak, which saw Chinese stock plunge well over 20% and 17% in just the first three days of this week, overnight the Shanghai Composite was hanging by a thread (and threat) until the last hour of trading. In fact, this is what the SHCOMP looked like until the very end: Up 2.6%, up 1.2%, up 2.8%, up 0.6%, up 2%... down 0.2%. And then the cavalry came in: "Heavyweight stocks like banks and insurance companies helped pull up the index, and it’s possibly China Securities Finance entering the market again to shore up stocks," Central China Sec. strategist Zhang Gang told Bloomberg by phone. Net result: the Composite, having been red just shortly before the close, soared higher by 156 points or 5.4%, showing the US stock market just how it's down.

It seemed like finally China's relentless and increasingly futile attempts to have a green stock close would work: interest rate cuts, liquidity injections, direct stock interventions, even threats on the Prime Minister's head, and just to make certain moments before the close news very deliberately broke that government funds are buying large financial stocks, especially state-owned banks, to support the index, in the latest clear signs of government support, the Shanghai Composite seemed on pace to end an unprecedented series of consecutive tumbles which have dragged the composite down nearly 1000 points, or 25% in one week, and then... red close, with the SHCOMP down 1.3% to 2927, and a stunned China watching in horror as the central bank and government lose control, and everything they throws at the biggest market bubble of 2015 does absolutely nothing.

We warned on Friday, after last week's China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. "The risk is that there isn't one." We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.

Germany's DAX is now down 15% since the "China doesn't matter" devaluation began with most European borses down 3-5% from Friday's close as the day started off with a modest bounce only to test new lows. EURUSD is now up 500 pips in 4 days back to 7 month highs. European bond risk is surging with Portugal up 50bps since China's debacle began. And finally crude continues to get battered, now testing the $38 handle for the first time since Feb 09.

“The war on drugs is over,... And we lost. There is no way we can arrest our way out of this." Situated on the coast of Massachusetts, Gloucester’s claims to fame include its status as “America’s original seaport,” as well as being the real-life location on which events in the movie The Perfect Storm (2000) were based. Now, the small town has a new reason to be the center of attention: its police have been granting complete amnesty to drug users who come to the station seeking help, even if they come bearing the remainder of their stash.

Carnage - everywhere. A surging EUR - as CNH carry traders unwind en masse - has led to an unwind across most risky assets in Europe. This week saw EuroStoxx 600 - the broad index - crash almost 6%, its biggest drop since September 2011. Perhaps most stunningly, Germany's DAX was the biggest loser - collapsing 7.4% on the week. European bonds are are also seeing risk increase dramatically with Portugal and Italy worst (aside from Greece's blowout). Europe's VIX topped 30 this week, as US VIX surges.

With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.

Just hours after the PBOC announced a modestly "revalued" fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39 it was the local stock market spinning plate - which had been relatively stable during the entire FX devaluation process - that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak.

During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity "success stories" was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. For many in the periphery, the notion of an economic recovery is fiction, plain and simple.

"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."

It has been more of the same in the latest quiet overnight session where many await tomorrow's NFP data for much needed guidance, and where Chinese markets opened weaker, rose during the day, then went through a mini rollercoaster, then sold off in the afternoon.  The Shanghai Composite and HS China Enterprises indices finished down .9% and .3%, respectively. Trading volume continued to be very subdued, running at half the thirty day average as some 20 million "investors" have pulled out of the market to be replaced with HFTs such as Virtu.  But while stock action has been muted, the story of the night so far is oil and the energy complex broke out of a tight overnight range early in the European session to continue yesterday's downward trend, seeing WTI Sep'15 futures fall below the USD 45.00 handle after yesterday's DoE crude oil inventories saw US crude output rise by 0.552%. As of this moment oil was trading at $44.72, just pennies above the low print of 2015.