Tonight's drop looks pretty contradictory on the surface—wasn't rate cut expectations supposed to be heating up?

After taking a closer look at global market data, it turns out the problem still lies with liquidity.

Let's start with the bond market. The 1-year short-term bond yield actually went up instead of down tonight, which is highly unusual. In theory, if rate cut expectations are strengthening, short-term yields—being most sensitive to policy rates—should keep falling. This current move suggests the market may have already fully priced in a December rate cut.

What's even stranger is the 10-year and 30-year long bond yields—they're clearly rising. If this was really about trading on rate cut expectations, investors should be rushing to buy Treasuries, not selling them. So what are they selling on? One factor is tonight's PCE data: while September inflation didn't keep climbing, it's still sticky, raising concerns about a possible rebound in future inflation.

An even more critical factor: expectations of a yen rate hike.

With the dollar falling and the yen rising, the interest rate differential is narrowing quickly, and carry trade funds are pulling out at an accelerated pace. Capital is starting to flow back into Japanese assets, directly pushing up both Japanese and U.S. bond yields. A quick glance at Japanese bond data shows yields there are also spiking.

The stock market is interesting too. The three major indices are up tonight, and the VIX fear index has dropped to around 15, which looks quite optimistic. But the Russell 2000 small-cap index is still falling, indicating that short-term risk appetite isn't actually that solid.

BTC hasn't escaped this round of liquidity rotation either. Watch the opening closely next week—be alert for the possibility of institutions dumping during the Asian trading session again, just like the stealth sell-off we saw on Monday.

The logic driving the market has already shifted from "benefit from rate cuts" to "disturbance from yen rate hikes." Capital flows have changed, and so have the rules of the game.