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Macro Regime — 2011-W08

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↩ Home Macro index ← 2011-02 board

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

Standing macro backdropBORROWED

Borrowed from its month (2011-02); 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	2011-02	2011-01	Change
Core CPI	% MoM	0.18 2011-02-01	0.21 2011-01-01	→ -0.03
Core PCE	% YoY	1.21 2011-02-01	1.12 2011-01-01	→ 0.09
CPI (YoY)	% YoY	2.12 2011-02-01	1.7 2011-01-01	▲ 0.42
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	60.8 2011-02-01	57 2011-01-03	▲ 3.8
PMI (svc)	index	59.4 2011-02-03	57.1 2011-01-05	▲ 2.3
Policy rate	%	0.25 2011-02-28	0.25 2011-01-31	→ 0
2s10s slope	pp	2.73 2011-02-28	2.84 2011-01-31	▼ -0.11
Unemployment	%	9 2011-02-01	9.1 2011-01-01	→ -0.1
10Y yield	%	3.42 2011-02-28	3.42 2011-01-31	→ 0
2Y yield	%	0.69 2011-02-28	0.58 2011-01-31	▲ 0.11

China

Indicator	Basis	2011-02	2011-01	Change
CPI (YoY)	% YoY	4.9 2011-02-15	4.6 2011-01-20	▲ 0.3
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	52.2 2011-02-01	52.9 2011-01-01	▼ -0.7
PMI (svc)	index	57.2 2011-02-01	58.8 2011-01-01	▼ -1.6
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.68 2011-02-28	0.76 2011-01-31	▼ -0.07
Unemployment	%	not recorded
10Y yield	%	3.93 2011-02-28	4.02 2011-01-31	▼ -0.09
2Y yield	%	3.25 2011-02-28	3.26 2011-01-31	→ -0.01

Euro area

Indicator	Basis	2011-02	2011-01	Change
CPI (YoY)	% YoY	2.3 2011-02-28	2.4 2011-01-31	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	-0.7 2011-02-01	0.6 2011-01-01	▼ -1.3
PMI (mfg)	index	59 2011-02-21	56.9 2011-01-24	▲ 2.1
PMI (svc)	index	57.2 2011-02-21	55.2 2011-01-24	▲ 2
Policy rate	%	1 2011-02-03	1 2011-01-13	→ 0
Unemployment	%	10 2011-02-01	10.1 2011-01-07	→ -0.1
10Y yield	%	4.47 2011-02-01	3.93 2011-01-01	▲ 0.54

Japan

Indicator	Basis	2011-02	2011-01	Change
Core CPI	% YoY	-1.3 2011-02-25	-0.7 2011-01-25	▼ -0.6
CPI (YoY)	% YoY	-0.6 2011-02-25	0 2011-01-25	▼ -0.6
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-02-15	0.1 2011-01-25	→ 0
Unemployment	%	not recorded
10Y yield	%	1.24 2011-02-01	1.21 2011-01-01	→ 0.03

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.

● 2 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.

● 1 active

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 57 → 60.8 (+3.8)

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: 57.3 → 59 (+1.7)

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).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 3.93263 → 4.47479 (+0.542158)

⚠ Fired on a stale print: yield_10y as of 2011-02-01 (26d old). The change may predate current conditions — treat as provisional.

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount ratediscount 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. for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yieldreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

Caveat: Granularity is daily, so a single-session jump can be noise; a sustained multi-session move is the real signal. Distinguish a growth-driven rise (risk-on) from a supply/term-premium rise (risk-off).

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

Japan

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: -0.7 → -1.3 (-0.6)

Core inflation falls more than the prior reading.
Why: A faster-than-expected cooling in the persistent part of inflation tells the market the central bank has more room to ease.
The market prices an earlier or deeper easing path.
Why: Lower inflation removes the reason to keep rates high, so traders pull forward expected cuts into the curve.
Real yields fall.
Why: The expected policy ratepolicy 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. drops while inflation expectations stay anchored, so the inflation-adjusted return demanded by lenders declines.
A lower discount rate re-rates long-duration assets upward; long bonds rally.
Why: Future cash flows are now discounted less harshly, lifting growth equities most; bond prices rise mechanically as their yields fall.

Helps
long-duration growth equitieslong-dated government bondsgoldrate-sensitive sectors (utilities, REITs)

Hurts
USD (vs easing-laggard peers)bank net-interest margins

Caveat: Misfires if disinflation is driven by demand collapse rather than supply normalization — then the growth scare dominates and risk assets fall despite lower yields.

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.
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.

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.60	2.12	-0.52 ▼	2011-02-14
Core CPI	0.20	0.18	+0.02 ▬	2011-02-17
Core PCE	1.21	1.12	+0.09 ▬	2011-02-01
Policy rate	0.25	0.25	+0.00 ▬	2011-02-27
GDP	2.80	3.20	-0.40 ▼	2011-02-25
PMI (mfg)	60.80	57.00	+3.80 ▲	2011-02-01
PMI (svc)	59.40	57.10	+2.30 ▲	2011-02-03
Unemployment	9.00	9.00	+0.00 ▬	2011-02-04
10Y yield	3.42	3.46	-0.04 ▬	2011-02-25
2Y yield	0.72	0.73	-0.01 ▬	2011-02-25
2s10s slope	2.70	2.73	-0.03 ▬	2011-02-25
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	4.90	4.60	+0.30 ▲	2011-02-15
Policy rate	n/a
GDP	9.80	—		2011-01-20
PMI (mfg)	52.20	52.90	-0.70 ▼	2011-02-01
PMI (svc)	57.20	58.80	-1.60 ▼	2011-02-01
Unemployment	n/a
10Y yield	3.96	3.91	+0.04 ▬	2011-02-25
2Y yield	3.24	3.24	-0.00 ▬	2011-02-25
2s10s slope	0.71	0.67	+0.05 ▬	2011-02-25
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.20	+0.20 ▲	2011-01-31
Policy rate	1.00	1.00	+0.00 ▬	2011-02-03
GDP	-0.70	0.60	-1.30 ▼	2011-02-01
PMI (mfg)	59.00	57.30	+1.70 ▲	2011-02-21
PMI (svc)	57.20	55.90	+1.30 ▲	2011-02-21
Unemployment	10.00	10.10	-0.10 ▬	2011-02-01
10Y yield	4.47	3.93	+0.54 ▲	2011-02-01 ⚠⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.60	0.00	-0.60 ▼	2011-02-25
Core CPI	-1.30	-0.70	-0.60 ▼	2011-02-25
Policy rate	0.10	0.10	+0.00 ▬	2011-02-15
GDP	n/a
PMI (mfg)	n/a
Unemployment	4.90	5.00	-0.10 ▬	2011-01-29
10Y yield	1.24	1.21	+0.03 ▬	2011-02-01 ⚠⚠
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.