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, contradicting central banks losing credibility, as well as the miners with copper sliding back to a 2 week low, and the ongoing Volkswagen (VLKAY) fiasco.

The first sign that not all is well was the latest plunge in Glencore (GLCNF) shares tracking the recent selling in copper which two weeks after a “doomsday” capital raise, has once again crashed to fresh all time lows, down 10% on the session, and down 80% since the 2011 IPO. GLEN CDS, as we predicted 2 weeks ago, is back over 400 bps.

The general risk off tone was exacerbated by a steep selloff in the all important carry pair, the USD/JPY, 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.”

German Transportation Minister Alexander Dobrindt told the Bild newspaper in an interview published Tuesday that he has ordered emissions checks of VW diesel models in Germany. Italy’s Environment Ministry asked VW for assurances it has respected emission rules for its cars sold in Italy. South Korea said it will check whether the German automaker complied with its pollution standards.

French Finance Minister Michel Sapin called for a Europe-wide probe into carmarkers, including French ones, in the wake of the revelations. “It’s seems necessary,” Sapin told Europe 1 radio. “We have to do it at a European level because the market is European with European rules.”

As a result of the profit warning and concerns this will get much worse before it gets better, 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.

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