A hawkish Fed cut, thin liquidity, and uneven conviction set the tone this week. Here is how it played out.
Macro: A Hawkish Cut, but Liquidity Still Drips In
The Fed delivered its third consecutive rate cut this week, but the reaction was anything but straightforward. On paper, easing should have been a clear positive; in practice, Powell delivered a rather hawkish cut with a cautious forward path. The policy rate now sits at 3.50–3.75%, and the median of the dot plot chart points only one additional cut in 2026, far fewer than markets were hoping for.
At the same time, the Fed added a small but meaningful liquidity tailwind through USD 40 billion in monthly T-bill purchases starting 12 December. It is not a policy pivot, but it quietly improves conditions in a market that has been short on upside surprises. Still, this was a week where sentiment took its cues from elsewhere. Oracle’s earnings miss and aggressive capex guidance triggered the sharpest AI-related de-risking we have seen since the summer, with credit spreads blowing wider and the stock posting its biggest one-day drop since the dot-com era. It was not about Oracle alone, it was the first clean sign that parts of the AI investment cycle may be overheating. In thin December liquidity, that wobble was enough to drag broader risk sentiment lower on Thursday. Nevertheless, US equities showed notable resilience, as the S&P 500 advanced 0.45% on the week and the Nasdaq, flat on the week, remained well supported.
Globally, divergence is becoming more pronounced. Japan edges toward tighter policy, the ECB and BoC remain cautious, and the US is easing at the margin. The result is a liquidity split: supportive in the US, uncertain in Europe, and tightening across parts of Asia. A solid 30-year Treasury auction helped calm nerves around long-end supply, but it did little to change the underlying picture: Conditions are improving, yet conviction is still struggling to follow.
Taken together, the ability of equities to hold up well despite thin liquidity and several idiosyncratic shocks is an encouraging signal, suggesting that incremental liquidity improvements could translate into a more constructive backdrop for risk assets into year-end.
Crypto: Stability Without Conviction
Crypto spent the week trying to stabilize after the macro whiplash, but conviction remained elusive. BTC briefly pushed above USD 94,000 in the immediate post-Fed relief before sliding back to the USD 90-92,000 levels. ETH, by contrast, held up better and finished the week around USD 3,250, outperforming BTC by roughly 4% as rotation into selective alt risk continued.
ETF flows told a similar story: overall positive but uneven. BTC ETFs saw two strong inflow days, USD +152 million and +223 million respectively, offset by a notable USD –60 million outflows on Monday. ETH flows were also lumpy, with a large USD +178 million mid-week print driving most of the gains after a negative start.
On the options side, BTC’s 7-day 25-delta skew oscillated between –4 and –5, while 7-day ATM implied volatility continued to grind lower toward 42%, pointing to a market that is gradually relaxing but remains quick to de-risk on any adverse move. ETH’s front-end showed a broadly similar structure, albeit with more volatile skews, as 7-day ATM implied volatility eased toward the 64% area. Funding across both assets remained muted but positive, reinforcing the picture of cautious, sideways positioning rather than a renewed directional push.
Microstructure still presents the main constraint. Liquidity stayed thin, with small flows producing oversized moves, especially when broader risk sentiment deteriorated. That dynamic amplified the equity-led risk-off impulse yesterday. Meanwhile, Strategy’s mNAV mechanics stayed quiet this week, but the episode earlier this month left a mark. The possibility of forced BTC sales if NAV compresses again remains a tail risk that traders continue to price in, and that lingering uncertainty still caps how aggressively the market is willing to lean long.
Overall, crypto feels steadier than it did a week ago, and ETH’s relative strength is a small positive. But with liquidity thin and macro sentiment fragile, every move still feels larger than the flow behind it – a reminder that stability does not yet equal confidence.
Looking Ahead: US Macro in Focus
Looking ahead, attention remains on the US, with NFP, CPI, and Friday’s core PCE the key releases following this week’s Fed cut. Payrolls will test the resilience of the labor market, while inflation, particularly the Fed’s preferred PCE measure, will shape expectations for the 2026 easing path. Alongside US data, ECB and BoJ rate decisions will be watched for any shifts in global policy divergence. In thin year-end liquidity, any surprise across data or central-bank communication could trigger an outsized market reaction.
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