Why did it fall last night? This is a question that troubles many people. Didn't the expectation of interest rate cuts increase?

In fact, it is still a liquidity issue. We can take a look at the global market situation, which shows some signs:

1. The expectation of interest rate cuts has increased, but the positive effects brought by this expectation seem to have been mostly consumed. Apart from being optimistic about the expectation of a rate cut in December, the financial market is also responding to the interest rate hike in yen.

2. The yield on 1-year short-term bonds has slightly increased. Clearly, tonight's data has not shown more optimism in the bond market. Under normal circumstances, an increase in interest rate cut expectations should lead to a continued decline in the yield on 1-year short-term bonds, as short-term bonds are more sensitive to interest rates. The fact that they are not falling but rising indicates that the market's expectation of a rate cut in December may have already peaked.

3. The yields on 10-year and 30-year long-term bonds have clearly risen. If we are purely expecting future interest rate cuts, we should be buying U.S. bonds rather than selling them. This also means that the current long-term bond market is not trading on the expectation of interest rate cuts.

4. There are two main factors driving the rise in long-term bond yields. Tonight's PCE data shows that although inflation did not rise in September, it still has stickiness. If there are concerns about future inflation, this can stimulate an increase in long-term bond yields.

Secondly, the expectation of a yen interest rate hike continues to lead to the selling of U.S. bonds, capital flowing back to yen assets, U.S. dollar interest rate cuts, yen interest rate hikes, and the narrowing of interest rate differentials. Accelerated arbitrage trading closing positions can lead to a spike in both Japanese and U.S. long-term bond yields, with the current Japanese bond yields also rising rapidly.

5. Although the three major U.S. stock indices are currently rising and the VIX index has fallen to around 15, the Russell 2000 index is still in decline. This clearly indicates that the short-term risk appetite for U.S. stocks is not too optimistic, even though the VIX index is in an optimistic phase.

6. Overall, the main factors currently affecting the financial market have gradually shifted towards expectations of yen interest rate hikes after the weakening of interest rate cut expectations, along with the transfer of capital liquidity, which also includes BTC. Next week, we also need to pay attention to whether there will be institutional selling of BTC during the Asian trading hours, similar to the situation that occurred this Monday.

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