📉 Tonight's drop left many people confused: with rate cut expectations clearly heating up, why did the market fall instead?

Don't rush—the answer isn't in the headlines, but in the undercurrents of liquidity. The global market has already voted with its feet; it's just that many haven't caught on yet.

First, about the rate cut. Expectations for a December rate cut have indeed intensified, but the market has already priced in most of the good news. Look at the 1-year short-term bond yields: in theory, with stronger rate cut expectations, they should keep heading lower—short-term bonds are the most sensitive to interest rates. But what happened? They rebounded slightly tonight. The bond market is telling you in the most direct way: this round of expectations is pretty much played out.

Now look at the long end. The 10-year and 30-year Treasury yields rose significantly, which is not the movement you’d expect under a rate cut logic. Normally, rate cut expectations would spur bond buying, not selling. So what's pushing long bond yields higher?

Two factors are at play. First is tonight’s PCE data—September inflation didn’t climb further, but the stickiness remains, keeping the market wary about future inflation. More crucially, there’s movement on the yen side. Expectations for a rate hike in Japan are rising, prompting capital to flow back into yen assets, triggering U.S. Treasuries to be sold off. With a U.S. rate cut and a yen rate hike, the interest rate spread is narrowing more quickly, forcing carry trades to unwind and directly pushing up both U.S. and Japanese bond yields—just look at the surge in Japanese bond yields for confirmation.

There’s something odd in the equity market too. Although the three major indexes are up and the VIX fear index has fallen back to around 15, the Russell 2000 small-cap index is still dropping. This divergence indicates that short-term risk appetite isn’t as upbeat as it looks—large-cap stocks are just propping up the market.

To sum up: the market’s main theme has already shifted from “trading rate cuts” to “responding to a yen rate hike.” Liquidity is shifting, and BTC is also affected. Keep a close eye on the Asian markets next week—watch out for another institutional sell-off like we saw on Monday.

Capital flows always move ahead of the news. Stay observant, stay calm.