Markets are bracing for a hawkish Fed today, and the setup looks bad for anyone hoping for rate cuts.

• Canada just raised rates as a "preemptive" move against energy-driven inflation, and that's seen as a preview of what the Fed might do.
• Oil prices are up sharply over the past month on growing signs the US and Israel could launch a new round of strikes on Iran after the midterms, with talk of hitting nuclear or electrical infrastructure.
• Inflation expectations in the bond market just ticked higher right after the Canadian hike, which is the opposite of what the Fed wants to see going into its own meeting.
• Half of the components in the inflation data are running hot, and the last two inflation reports came in worse than expected, giving the Fed little excuse to ease up.
• Strong cloud and AI business earnings this month are also removing any argument that the economy is too weak to handle higher rates.

Outlook: Expect a hawkish tone from the Fed today, with real relief for markets likely only if a deal with Iran materializes in the coming weeks.