Last week, the global markets were quite interesting—risk appetite remained steady, but the G7 bond markets were caught off guard by a wave of strong data.

Starting with Australia, the CPI year-on-year jumped directly to 3.8%, higher than the market expectation of 3.6%. As soon as this data was released, the 5-year government bond yield spiked 15 basis points in a single day, and the Australian dollar rose 2.5% against the US dollar in a month. Things were even more dramatic in Canada, where the employment report was explosively strong—the unemployment rate was 6.5%, well below the expected 7.0%. The result? The Canadian 5-year government bond saw its largest single-day swing since 2022, jumping 20 basis points, and the Canadian dollar surged 2% as well.

Japan's situation is also worth noting. Although capital expenditures were weak, the market is almost certain that the Bank of Japan will raise rates this month, with a probability as high as 90%. In comparison, the Fed’s dovish stance stands out particularly among the G7.

Speaking of the Fed, the market generally expects a 25 basis point rate cut at this week’s FOMC meeting, with two more cuts coming in 2026. Although inflation has been stubborn, the Fed is focusing on the weak performance of the unemployment rate ( around 4.5% ), intending to use this as a reason to execute the final rate cut of the year. Considering there are still two employment reports to be released between December and January, Powell is likely to leave room for another rate cut in January or March. As for the dot plot forecasts for 2026? They’ll probably be similar to last time.

However, the Fed’s dovish stance is starting to be questioned by the market. Investors are closely watching what signals Powell will send during the Q&A session.