Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early -4.7% rout coupled with the PBOC's biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese "National Team" to get stocks as close to green as possible.

Sure enough they tried, and tried so hard the "hulk's" green color almost came through in the last hour of trading ...

.... yet, despite the symbolic importance of having a green close at least one day this week ahead of China's victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week...

This takes places as China has thrown the proverbial kitchen sink at the market and achieved nothing. As a reminder,the FT reported yesterday in their most recent desperation scramble, four Chinese regulatory agencies issued a joint statement “encouraging” listed companies to hand out more dividends, buy back their own shares and carry out more mergers and corporate restructurings to boost slumping share prices. The statement from the finance ministry and the regulators in charge of securities, banking and state-owned assets was issued after Beijing’s decision to end its large-scale but unsuccessful programme of direct stock purchases.

State-owned funds and financial institutions have spent more than $200bn since early July trying to prop up the market but benchmark indices have still fallen 40 per cent from their peak of early June. The government has decided to abandon these share purchases and concentrate instead on boosting the slowing real economy, “improving the quality of the equity market” and arresting people deemed to be manipulating the market. In their statement, the four agencies pledged to step up the restructuring and mergers of listed state enterprises to make them more attractive to investors.

The statement also said the agencies would “actively encourage” listed companies to issue more cash dividends, a practice that is relatively rare among companies listed on mainland Chinese stock exchanges. The agencies will facilitate share buybacks by listed companies through regulatory measures that, analysts said, could include tax breaks. Buybacks would take place when share prices fall below net asset value.

And since everything China has tried so far, even arrests and threats, has failed, this bodes very poorly for Chinese stocks come next week because while the FT previously bombastically reported that the "National Team" will no longer intervene over the weekend, only to do just that for 3 consecutive days, at least it had a patriotic alibi. After Sunday, all bets are off.

On the whole, Asian equity markets traded mostly higher for a bulk of the session before falling back into negative territory before the close, with the Shanghai Comp. (-0.2%) paring as much as 4.7% of losses as investors readjusted positions ahead of the long weekend, while brokerages also announced additional funds to back China Securities Finance Corp and support China's stock markets. Nikkei 225 (-0.4%) outperformed for most of the session amid short covering and JPY weakness before seeing some weakness as European particpants came to their desk, while ASX 200 (-0.86%) was weighed on by the energy sector after WTI posted its largest intraday decline in 7 months. JGBs traded mildly lower following the strength in Japanese equities, while losses were stemmed as the BoJ entered the market to purchase JPY 1.2trl of government.

Over to Europe, where cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot (Euro Stoxx: -0.3%) as market participants were left somewhat uninspired by the lack of firm actions by Chinese officials to prevent the flight of capital. Energy names underperformed on the sector breakdown, whereas the more defensive sectors, such as healthcare traded in the green. Despite the ongoing downside in global equities, analysts at Morgan Stanley issued a buy alert on stocks for the first time since early 2009. Such calls typically lead to a V-shaped recovery that delivers a 23% gain in stock prices over the following 12 months.

Looking at US stocks, don't even bother - just focus on the USDJPY, which has once again become a beacon for all E-mini algos (note last night's Japan open surge), and spare yourself the need for 3-4 extra monitors. It is all in the hands of the BOJ's direct and indirect interventions today, with the 120 "tractor beam" level shining through brightly (also keep in mind that after going long of stocks in confused terms on Monday, Gartman warned CNBC that he now expects a bear market - trade accordingly).

Bunds have been supported since the get-go, with peripheral bond yield spreads trading wider and Portuguese bonds underperforming as the debt agency announced that it is mandating for its 2022 bond. Of note, analysts at BNP Paribas noted that the downside by Bunds may struggle to extend from here, citing the risk that the ECB may see cause to signal more easing ahead at its press conference tomorrow.

In FX, commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade, while AUD/USD briefly fell below 0.7000 overnight for the first time since 2009 on the back of the lower than expected GDP reading. Elsewhere, choppy price action was observed by EUR and GBP related crosses with USD-index (+0.2%) spending the European morning in the green in a paring of some of yesterday's losses .

In commodities, we saw a continuation of WTI and Brent crude future prices under pressure in European trade, lower by around USD 1.00, following a devastating for oil bulls API inventory build of 7.6MM barrels following a 7.3MM drawdown the week before, as suddenly US refiner demand is as volatile as Chinese stocks. Participants will be looking ahead to today's DoE crude oil inventories update (Exp. 900k) after yesterday's APIs saw a substantial build of 7600K (Prey. drawdown of 7300K).

Today's highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data.

Market Wrap

• S&P 500 futures up 0.4% at 1925
• Stoxx 600 gained as much as 0.8% in early trading
• Brent Futures down 1.7% at $48.7/bbl, WTI Futures down 2.2% at $44.4/bbl ahead of U.S. data forecast to show stockpiles
• Euro down 0.3% at $1.1280
• V2X down 0.4% at 34.1
• German 10Yr yield down 2bps at 0.77%
• LME 3m Copper down 0.1% at $5065.5/MT
• Gold spot unch at $1139/oz
• Shanghai Composite Index down 0.2%
• Royal Dutch Shell down 1.5%; Total down 1.5%, Statoil down 1.2%, Repsol down 1.2%, BP down 1.2%
• “Markets are just nervous and we need to bear in mind that many macro indicators will be published before the end of the week so uncertainty will remain,” Saxo Bank trader Andrea Tueni says by phone

Bulletin Headline Summary from Bloomberg and RanSquawk

• Cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot
• Commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade
• Today's highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data
• Treasuries little changed as U.S. stock-index futures and European stocks gain despite losses in Asia; ADP Employment due today, est. +200k jobs added in August; payrolls Friday, est. +218k, unemployment rate 5.2%.
• China-focused hedge funds probably had their worst month in almost 16 years in August, with firms including Orchid Asia Group Management and APS Asset Management Pte suffering losses from the nation’s stock market collapse
• China’s central bank will have to step back from supporting the yuan by early December and allow the currency to decline given the current strain on forex, according to Rabobank Group
• Even as U.S. policy makers ponder whether to raise rates this month, central bank forex reserves -- one recent source of liquidity in financial markets -- is drying up and the loss of it partly explains August’s trading volatility
• Australia’s economy expanded last quarter at half the pace forecast -- only propped up by government and household spending -- as a slowdown in key trading partner China weighed on exports
• No IG deals have priced for last 10 sessions, no HY since August 19. BofAML Corporate Master Index +1bp to +170; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS +8bp to +578; reached +614 last week, widest since July 2012; YTD low 438
• Sovereign 10Y bond yields mostly lower. Asian and European stocks decline, U.S.equity-index futures rise. Crude oil falls, gold and copper little changed

US Event Calendar

• 7:00am: MBA Mortgage Applications, Aug. 28 (prior 0.2%)
• 8:15am: ADP Employment Change, Aug., est. 200k (prior 185k)
• 8:30am: Non-farm Productivity, 2Q F, est. 2.8% (prior 1.3%)
  • Unit Labor Costs, 2Q F, est. -1.2% (prior 0.5%)
• 9:45am: ISM New York, Aug. (prior 68.8)
• 10:00am: Factory Orders, July, est. 0.9% (prior 1.8%)
  • Factory Orders Ex-Transportation, July (prior 0.5%)
• 2:00pm: Fed releases Beige Book

DB's Jim Reid completes the overnight recap

It’s straight to Asia this morning where hot on the heels of more turmoil on Wall Street yesterday, as well this side of the pond, Asian equity markets have staged something of a recovery leading into the midday break. Led by China once again, the Shanghai Comp (+0.31%) has reversed earlier losses of more than 4% at the open while the Shenzhen (+0.67%) has staged a similar rebound in the last trading day for Chinese equity markets this week before bourses close for the rest of the week for public holidays. The Nikkei (+1.20%) is up also while the Hang Seng (+0.03%), Kospi (+0.19%) and ASX (-0.41%) have staged material rebounds too. Elsewhere, S&P 500 futures are pointing to a near 1% rebound while in the FX space the AUD is largely unchanged despite a softer than expected Q2 print out of Australia (+0.2% qoq vs. +0.4% expected).

Looking back at the price action yesterday, with sentiment weak in the Asia session following the soft Chinese PMI data (albeit broadly in-line with consensus), the declines in equity markets in Asia saw Europe take a fresh tumble with the Stoxx 600 (-2.73%) and DAX (-2.38%) both down sharply before the US saw the S&P 500 (-2.96%) kick start the new month very much on the back foot. A softer than expected US ISM manufacturing reading (51.1 vs. 52.5 expected) added to the damper tone across markets yesterday, while there was attention paid to the weak new orders (two-year low) and export (three-year low) components in particular which contributed in helping to nudge down September Fed liftoff expectations to 32% from the 42% this time yesterday.

On that note there was more Fedspeak for us to digest yesterday, this time from Boston Fed President Rosengren. A non-voter this year and seen as somewhat dovish in views, the Fed official didn’t offer a whole lot of new information relative to what we’ve already heard after arguing that doubts over inflation justify only a modest pace of rate hikes. Specifically, Rosengren said that ‘given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles’. Taking the attention away from timing, for which there were no real clues to take away, Rosengren also highlighted that ‘recent reports on wages and salaries still show few signs that the tightening labour markets are translating to increases in wages and salaries consistent with reaching 2% inflation’. The official did make some acknowledgement to the recent turbulence in markets, saying that ‘we are exposed to international factors, so if there is a global slowdown, we won’t be perfectly insulated’.

Speaking of turbulence, the sharp moves in Oil continue to grab much of the limelight and yesterday we saw WTI (-7.70%) and Brent (-8.48%) snap the biggest three-day rally in 25 years (falling a further 2% this morning) as the China data seemingly put a halt to the surge. Today’s weekly US production numbers from the EIA is set to be a closely watched release while the fallout from the weakness in prices this year is no more evident than in Canada where the economy there officially entered a recession on the back of a second straight quarterly decline in GDP (Q2 -0.5%), although perhaps painting a glimmer of hope that the move might be short-lived with the reading surprising to the upside after expectations of a contraction of 1% last quarter.

The generally weaker tone in markets, exaggerated by the falls in Oil saw US Treasury yields come under decent downward pressure. The benchmark 10y closed 6.6bps lower at 2.153% while there were moves lower too for the 2y (-3.3bps) and 5y (-6.0bps) parts of the curve. It was a much more choppy session for European rates where we eventually saw 10y Bunds close more or less unchanged at 0.795%.

In terms of yesterday’s data flow, along with the softer ISM manufacturing reading, there was a notable decline also for the ISM prices paid component which fell 5pts in August to 39.0, albeit in line with expectations. The generally uneasy tone yesterday was also not helped by a weak IBD/TIPP economic optimism reading (42.0 vs. 47.1 expected), slipping nearly 5pts from last month and to the lowest since October 2013 with the economic outlook component in particular dropping 6pts. Elsewhere, there was a slight upward revision to the final manufacturing PMI reading to 53.0 (+0.1pts) while construction spending for July rose +0.7% mom (vs. +0.6% expected). Finally vehicles sales in August came in a tad ahead of expectations at 13.8m saar (vs. 13.7m expected). Following the ISM manufacturing and construction spending reports, the Atlanta Fed downgraded their Q3 GDPNow forecast to 1.3% from 1.4% on the 29th August.

Closer to home yesterday, there was a modest downward revision to the final Euro area manufacturing PMI to 52.3 (from 52.4), weighed down in particular by a 0.3pt downward revision in France to 48.3, while Germany was revised up a notch to 53.3 (+0.1pts). We also got unemployment data out of Germany which saw no change last month at 6.4%, although there was a reasonable improvement in the Euro area rate to 10.9% from 11.1%, the lowest level since February 2012.

In terms of today’s calendar it’s a quiet morning in the European timezone with just Euro area PPI data due. Over in the US this afternoon the bulk of the attention will be on the August ADP employment change print as a prelude to Friday’s payrolls with market expectations at 200k. Elsewhere we’ll also get Q2 nonfarm productivity and unit labour costs, July factory orders and the ISM NY. The Fed’s Beige Book is also due to be released later this evening.