Why did it drop tonight? This is a question that has puzzled many people. Didn't the expectation of interest rate cuts increase?

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

1. The expectation of interest rate cuts has increased, but the positive effects brought by this expectation seem to have been exhausted. In the financial market, apart from being optimistic about the expectation of interest rate cuts in December, there are also responses to interest rate hikes in the Japanese 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. Normally, with an increase in the expectation of interest rate cuts, the yield on 1-year short-term bonds would continue to decline, as short-term bonds are more sensitive to interest rates. The fact that it has not decreased but instead increased indicates that the market's expectation of a potential interest rate cut in December may have already played out.

3. The yields on 10-year and 30-year long-term bonds have clearly risen. If it were purely a matter of expecting future interest rate cuts, one should be buying U.S. Treasuries instead of selling them. This also implies 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, it would stimulate the rise in long-term bond yields.

Secondly, the expectation of interest rate hikes in the Japanese yen continues to lead to selling of U.S. Treasuries, with capital flowing back to yen assets. With U.S. interest rate cuts and Japanese interest rate hikes, the interest rate differential is narrowing rapidly, and the acceleration of arbitrage transactions closing positions will lead to a surge in yields of Japanese bonds and U.S. long-term bonds. Currently, the yield on Japanese bonds is also rising rapidly.

5. Although the three major U.S. stock indices are up and the VIX index has fallen to around 15, the Russell 2000 index is still in decline. Clearly, the short-term risk preference in the U.S. stock market is not very optimistic, even though the VIX index is in an optimistic phase.

6. In summary, the main factors currently affecting the financial market are the weakening of interest rate cut expectations, gradually shifting to expectations of interest rate hikes in the Japanese yen, and the transfer of capital liquidity, which also includes BTC. Next week, during the Asian trading phase, it is necessary to pay attention to whether there will be any institutional selling of BTC, similar to what happened this Monday.