The S&P500 index closed flat on Monday after slowly unwinding losses early in the session. European and Asian equities were mixed. US 10-Year Treasury yields lifted 3bps to 0.71%, and 2Y yields rose a bit as well. Oil fell by 1.4%.

News flows have been primarily focused on the reopening themes but more specifically on the negative side of the equation as indications abound that increased mobility will lead to re-occurrences of the virus and to which will change the slope of the recovery.

While markets may eventually desensitize to mini-cluster outbreaks, provided death statistics remains static. Still, at this stage, it does not lessen fears of a significant secondary spreader, which will undoubtedly weigh on consumer sentiment and hurt the rebound.

Unfortunately for global risk markets in general, this will be a recurring theme until effective vaccines are made available to the masses.

Earnings are mainly behind us, but a lot of uncertainty remains. Though after majority felt we ran “too far too fast,” the conversation has started to shift a tad more favourably. Hard to say anyone pounding the table positive, though, but there is less negativity out there now, and investors continue to buy the dips.

The market is on the recovery roller coaster. Making frequent stops at the West Wing to cover “Main Streets” back, 33 Liberty Street (NY FED) to make sure the wheels of the market are greased. And the daily check-in at John Hopkins to make sure the curves are flattening.

Asian stocks are poised for a mixed start as traders assess the challenges economies face removing restrictions amid the coronavirus pandemic. And at the same time busily searching for their highest conviction beta catch up trade

Negative Fed Funds

Everyone on the Street seems to be expressing a view on negative rates in the US front end. The universal opinion is that it is irrational, reflective of market technicalities, reduced liquidity, and quirks of the financial system.

No one expects the Fed to go negative: it would kill money market funds, which are a fundamental pillar of the US financing system.

There is a saying that the Fed decides when to hike rates and the market tells the Fed when to cut.

So even though the Fed currently claims negative rates are not appropriate, it is another question of how they will feel if 20 basis points of cuts get priced into the September 2020 meeting.

I would guess Chairman Powell will stick to that script for now (he speaks Wednesday at 9 a.m. NY) because market pricing of negative rates remains minimal. But given the Feds never-ending desire to corroborate market expectations, I would guess negative rate market pricing could eventually test the credibility of the current “we don’t want negative rates” mantra.

For this reason, no matter what the Fed says, I would never rule it out.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp