The drop last night was quite unexpected—clearly, rate cut expectations are heating up, so why is the market starting to correct instead?

To get straight to the point: the key lies in a “liquidity shift”; the way global capital is being deployed has changed.

Let’s look at a few unusual signals. The rate cut boost from December? That’s already been fully priced in. Now, the market has one eye on the afterglow of rate cut expectations, but the other is already wary of the chain reaction from potential yen rate hikes. Smart money is exiting early.

Now, look at the bond market. The 1-year short-term bond yield is rising instead of falling—this instrument is most sensitive to interest rates, and if yields are going up, it means the December rate cut was overestimated, and the bond market isn’t confident. What’s even stranger is that yields for 10-year and 30-year US Treasuries are soaring—as a rule, if you’re betting on rate cuts, capital should be rushing to buy long-term bonds to lock in yields, but the logic now is no longer just about “trading the rate cut.”

Two things are pushing up long-term bonds. First, although the September PCE data didn’t keep climbing, inflation remains extremely sticky, and the market is starting to worry about a rebound ahead. Second, expectations for a yen rate hike are getting more and more real, and capital is starting to flow back into yen assets. With the USD rate cut and JPY rate hike, the interest rate differential is narrowing, carry trades are being unwound, and both US and Japanese bond yields are rising.

The stock market is also quite divided. The three major indexes are superficially in the green, and the VIX is down to around 15, which looks optimistic, but the Russell 2000 keeps falling, indicating that short-term risk appetite isn’t actually that strong.

In summary: the core market logic has shifted from “cooling rate cut expectations” to “rising yen rate hike expectations.” Liquidity is shifting, and BTC is being affected as well. Next week, be cautious of institutional BTC sell-offs during the Asian session—don’t let this week’s Monday scenario repeat itself.