Last week, the global fixed income market was in an uproar—not due to panic, but because several unexpectedly strong economic data releases caught investors off guard.

First, Australia’s CPI jumped to 3.8% year-over-year (the market expected 3.6%), which immediately pushed the 5-year government bond yield up by 15 basis points, and the Australian dollar surged 2.5% against the US dollar in a month. Before the market could recover, Canada’s employment data delivered another blow: the unemployment rate came in at 6.5%, while the forecast was 7.0%! This "overachieving report card" caused Canada’s 5-year government bond yield to spike 20 basis points in a single day—the biggest move since 2022, and the Canadian dollar jumped 2% in response.

Looking at Japan, although capital expenditure remains sluggish, the market has priced in a 90% probability that the Bank of Japan will hike rates this month. After this round, the Fed’s dovish playbook is starting to look a bit out of place among the G7.

Currently, the market is betting that the Fed will cut rates by 25 basis points this week, with two more cuts expected in 2026. The logic is straightforward: although inflation remains stubbornly high, with the unemployment rate reaching around 4.5%, the Fed has an excuse to "focus on employment." More importantly, there are two more jobs reports before the December to January FOMC meetings, so Powell is likely to keep the option open for a rate cut in January or March, and the "dot plot" probably won’t change much.

However, this dovish strategy is beginning to face skepticism from the market. Investors are now more interested in how Powell will handle the press Q&A...