Macro Intelligence · Weekly · deep read

Macro Regime — 2011-W02

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↩ Home Macro index ← 2011-01 board

⚠ 2 very-stale + 0 stale series across the four blocs — flagged inline.

Standing macro backdropBORROWED

Borrowed from its month (2011-01); the weekly reads the standing object, it does not recompute the aggregate.

United States: expansion, at target
China: overheating / late-cycle
Euro area: expansion, at target
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2011-01	2010-12	Change
Core CPI	% MoM	0.21 2011-01-01	0.09 2010-12-01	▲ 0.12
Core PCE	% YoY	1.12 2011-01-01	1.06 2010-12-01	→ 0.06
CPI (YoY)	% YoY	1.7 2011-01-01	1.44 2010-12-01	▲ 0.26
FX vs USD	px	not recorded
GDP	% QoQ ann.	-0.9 2011-01-01	—	—
PMI (mfg)	index	57 2011-01-03	56.6 2010-12-01	▲ 0.4
PMI (svc)	index	57.1 2011-01-05	55 2010-12-03	▲ 2.1
Policy rate	%	0.25 2011-01-31	0.25 2010-12-31	→ 0
2s10s slope	pp	2.84 2011-01-31	2.69 2010-12-31	▲ 0.15
Unemployment	%	9.1 2011-01-01	9.3 2010-12-01	▼ -0.2
10Y yield	%	3.42 2011-01-31	3.3 2010-12-31	▲ 0.12
2Y yield	%	0.58 2011-01-31	0.61 2010-12-31	→ -0.03

China

Indicator	Basis	2011-01	2010-12	Change
CPI (YoY)	% YoY	4.6 2011-01-20	5.1 2010-12-11	▼ -0.5
FX vs USD	px	not recorded
GDP	% YoY	9.8 2011-01-20	—	—
PMI (mfg)	index	52.9 2011-01-01	53.9 2010-12-01	▼ -1
PMI (svc)	index	58.8 2011-01-01	58.9 2010-12-01	→ -0.1
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.76 2011-01-31	0.51 2010-12-31	▲ 0.25
Unemployment	%	not recorded
10Y yield	%	4.02 2011-01-31	3.88 2010-12-31	▲ 0.14
2Y yield	%	3.26 2011-01-31	3.37 2010-12-31	▼ -0.11

Euro area

Indicator	Basis	2011-01	2010-12	Change
CPI (YoY)	% YoY	2.4 2011-01-31	1.9 2010-12-16	▲ 0.5
FX vs USD	px	not recorded
GDP	% YoY	0.6 2011-01-01	0.1 2010-12-01	▲ 0.5
PMI (mfg)	index	56.9 2011-01-24	56.8 2010-12-16	→ 0.1
PMI (svc)	index	55.2 2011-01-24	53.7 2010-12-16	▲ 1.5
Policy rate	%	1 2011-01-13	1 2010-12-02	→ 0
Unemployment	%	10.1 2011-01-07	—	—
10Y yield	%	3.93 2011-01-01	4.05 2010-12-01	▼ -0.12

Japan

Indicator	Basis	2011-01	2010-12	Change
Core CPI	% YoY	-0.7 2011-01-25	-0.9 2010-12-26	▲ 0.2
CPI (YoY)	% YoY	0 2011-01-25	0.1 2010-12-26	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	-4.38 2011-01-01	—	—
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-01-25	0.1 2010-12-21	→ 0
Unemployment	%	4.9 2011-01-29	5 2010-12-30	→ -0.1
10Y yield	%	1.21 2011-01-01	1.13 2010-12-01	▲ 0.08

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

expansion, at target

expansion · at target · on hold

Solid growth with inflation near target. Constructive for risk assets broadly; the watch-item is whether inflation starts to push above target and shifts policy.

● 1 active

China

overheating / late-cycle

expansion · above target · on hold

Above-trend growth with above-target inflation. Late-cycle: cyclicals and inflation beneficiaries can still run, but the central bank is biased to tighten, so duration and high-multiple growth are exposed.

○ no change

Euro area ⚠ stale

expansion, at target

expansion · at target · on hold

Solid growth with inflation near target. Constructive for risk assets broadly; the watch-item is whether inflation starts to push above target and shifts policy.

● 1 active

Japan ⚠ stale

deflation watch

unknown · deflation risk · on hold

Activity is soft and inflation is at/below zero — the risk is entrenched deflation. Favors duration (long bonds) and quality; cyclicals struggle until policy eases decisively. The catalyst to watch is stimulus / a policy cut.

○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 56.6 → 57 (+0.4)

Manufacturing PMIPMI — Purchasing Managers' Index. Above 50 = the sector is expanding vs last month; below 50 = contracting. A timely read on activity. is above 50 and rising.
Why: A reading above 50 means more firms report expanding activity than contracting; rising means the breadth of expansion is widening — a timely, forward-looking growth signal.
Earnings expectations broaden toward economically-sensitive sectors.
Why: Stronger activity feeds revenue and pricing power first in the parts of the market geared to the physical economy.
Cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary., small-caps, EM and commodities lead; defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows. lag.
Why: Capital rotates toward the cycle — industrials, materials, energy, smaller and more leveraged firms, and the commodities their activity consumes — while steady-demand defensives become relatively less attractive.

Helps
cyclicals (industrials, materials, energy)small-capsEM equitycommodities

Hurts
defensive sectors (staples, utilities)long government bonds

Caveat: If acceleration also stokes inflation fears, the bond-yield response can offset the equity benefit (good growth becomes 'too good'), especially late-cycle.

House-view hook — empty (textbook default; Stephen's view bakes in here).

What would change the read

Inflation surprise (upside) Core inflation is steady, so the upside-surprise channel is quiet. It would fire on a core reading ≥0.2pp above the prior — watch it because that is what forces a central bank to stay restrictive and pressures the longest-duration assets first.
Inflation surprise (downside / disinflation) Core inflation isn't cooling fast enough to trigger the disinflation channel. A fall of ≥0.2pp would fire it — worth watching because it is the cleanest tailwind for long-duration growth and government bonds.
Monetary easing (rate cut) The policy rate is on hold, so the easing channel is dormant. A cut would fire it — it matters because the first cut of a cycle typically broadens a rally and pressures the currency.

China

No active mechanism this week — the standing read above carries the bloc.

What would change the read

Growth acceleration (expansionary PMI) Manufacturing isn't both expanding and accelerating, so the growth-acceleration channel is dormant. A rising PMI back above 50 would fire it — it matters because it's the signal to rotate from defensives toward cyclicals.
Growth slowdown (deepening contraction) Manufacturing is not both below 50 and falling, so the deepening-contraction channel is dormant. It fires when a sub-50 PMI turns lower — that is the trigger for the defensive rotation and a bid for duration (a sub-50 PMI that is *rising* is the trough channel, M13, not this one).
Long-end yield spike / term-premium rise The 10-year yield isn't spiking, so this channel is dormant. A jump of ≥0.1pp would fire it — watch it because it compresses the highest-multiple growth names and long bonds fastest.

Euro area

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 56.8 → 57.1 (+0.3)

Manufacturing PMI is above 50 and rising.
Why: A reading above 50 means more firms report expanding activity than contracting; rising means the breadth of expansion is widening — a timely, forward-looking growth signal.
Earnings expectations broaden toward economically-sensitive sectors.
Why: Stronger activity feeds revenue and pricing power first in the parts of the market geared to the physical economy.
Cyclicals, small-caps, EM and commodities lead; defensives lag.
Why: Capital rotates toward the cycle — industrials, materials, energy, smaller and more leveraged firms, and the commodities their activity consumes — while steady-demand defensives become relatively less attractive.

Helps
cyclicals (industrials, materials, energy)small-capsEM equitycommodities

Hurts
defensive sectors (staples, utilities)long government bonds

Caveat: If acceleration also stokes inflation fears, the bond-yield response can offset the equity benefit (good growth becomes 'too good'), especially late-cycle.

House-view hook — empty (textbook default; Stephen's view bakes in here).

What would change the read

Monetary easing (rate cut) The policy rate is on hold, so the easing channel is dormant. A cut would fire it — it matters because the first cut of a cycle typically broadens a rally and pressures the currency.
Monetary tightening (rate hike) The policy rate is steady, so the tightening channel is dormant. A hike would fire it — watch it because it hits long-duration growth, long bonds, and gold first.
Growth slowdown (deepening contraction) Manufacturing is not both below 50 and falling, so the deepening-contraction channel is dormant. It fires when a sub-50 PMI turns lower — that is the trigger for the defensive rotation and a bid for duration (a sub-50 PMI that is *rising* is the trough channel, M13, not this one).

Japan

No active mechanism this week — the standing read above carries the bloc.

What would change the read

Inflation surprise (upside) Core inflation is steady, so the upside-surprise channel is quiet. It would fire on a core reading ≥0.2pp above the prior — watch it because that is what forces a central bank to stay restrictive and pressures the longest-duration assets first.
Inflation surprise (downside / disinflation) Core inflation isn't cooling fast enough to trigger the disinflation channel. A fall of ≥0.2pp would fire it — worth watching because it is the cleanest tailwind for long-duration growth and government bonds.
Monetary easing (rate cut) The policy rate is on hold, so the easing channel is dormant. A cut would fire it — it matters because the first cut of a cycle typically broadens a rally and pressures the currency.

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.50	1.70	-0.20 ▼	2011-01-14
Core CPI	0.10	0.21	-0.11 ▼	2011-01-14
Core PCE	1.12	1.06	+0.06 ▬	2011-01-01
Policy rate	0.25	0.25	+0.00 ▬	2011-01-16
GDP	-0.90	2.60	-3.50 ▼	2011-01-01
PMI (mfg)	57.00	56.60	+0.40 ▲	2011-01-03
PMI (svc)	57.10	55.00	+2.10 ▲	2011-01-05
Unemployment	9.40	9.10	+0.30 ▲	2011-01-07
10Y yield	3.35	3.34	+0.01 ▬	2011-01-14
2Y yield	0.59	0.59	+0.00 ▬	2011-01-14
2s10s slope	2.76	2.75	+0.01 ▬	2011-01-14
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	5.10	4.40	+0.70 ▲	2010-12-11
Policy rate	n/a
GDP	n/a
PMI (mfg)	52.90	53.90	-1.00 ▼	2011-01-01
PMI (svc)	58.80	58.90	-0.10 ▬	2011-01-01
Unemployment	n/a
10Y yield	3.92	3.88	+0.03 ▬	2011-01-14
2Y yield	3.11	3.11	-0.00 ▬	2011-01-14
2s10s slope	0.81	0.77	+0.03 ▬	2011-01-14
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.20	2.20	+0.00 ▬	2011-01-14
Policy rate	1.00	1.00	+0.00 ▬	2011-01-13
GDP	0.60	0.10	+0.50 ▲	2011-01-01
PMI (mfg)	57.10	56.80	+0.30 ▲	2011-01-03
PMI (svc)	54.20	53.70	+0.50 ▲	2011-01-05
Unemployment	10.10	10.10	+0.00 ▬	2011-01-07
10Y yield	3.93	4.05	-0.12 ▼	2011-01-01 ⚠⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.20	-0.10 ▬	2010-12-26
Core CPI	-0.90	-0.80	-0.10 ▬	2010-12-26
Policy rate	0.10	0.10	+0.00 ▬	2010-12-21
GDP	n/a
PMI (mfg)	n/a
Unemployment	5.00	5.10	-0.10 ▬	2010-12-30
10Y yield	1.21	1.13	+0.08 ▲	2011-01-01 ⚠⚠
FX vs USD	n/a

Concept libraryL3

Terms marked ✓ are linked inline above — click any dotted term in the text to expand it in place.

2s10s: The gap between the 10-year and 2-year government bond yields. Positive = normal upward-sloping curve; negative ('inverted') = a classic late-cycle/recession warning.
PMI ✓: Purchasing Managers' Index. Above 50 = the sector is expanding vs last month; below 50 = contracting. A timely read on activity.
carry trade: Borrowing in a low-rate currency (long the yen's case) to buy higher-yielding assets elsewhere. It unwinds violently when the funding rate rises or the funding currency strengthens.
credit impulse: The change in the flow of new credit into an economy. A rising impulse front-runs stronger demand for commodities and cyclical goods, with a lag.
cyclicals ✓: Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary.
defensives ✓: Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows.
discount rate: The rate used to convert a future cash flow into today's value. A higher discount rate makes far-off cash flows worth less now.
disinflation: Inflation that is still positive but falling (prices rising more slowly) — distinct from deflation, where prices actually fall.
duration: How sensitive an asset's price is to interest rates. 'Long-duration' assets (long bonds, fast-growing stocks whose profits are years away) move most when rates change.
net interest margin: The spread a bank earns between what it charges on loans and pays on deposits. Higher short rates / steeper curves tend to widen it.
nominal yield: The headline interest rate on a bond, before subtracting inflation.
policy rate: The interest rate a central bank sets directly (e.g. the Fed funds rate, the ECB deposit rate, China's LPR). It anchors all other rates.
rate path: The market's expectation of where the policy rate goes over the next year or two — not just today's level, but the whole expected trajectory.
real yield: The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation.
term premium: The extra yield investors demand to hold a long bond instead of rolling short ones — compensation for tying money up and for issuance/inflation risk.