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Macro Regime — 2011-W09

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↩ Home Macro index ← 2011-03 board

Standing macro backdropBORROWED

Borrowed from its month (2011-03); 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	2011-03	2011-02	Change
Core CPI	% MoM	0.11 2011-03-01	0.18 2011-02-01	→ -0.07
Core PCE	% YoY	1.21 2011-03-01	1.21 2011-02-01	→ 0
CPI (YoY)	% YoY	2.62 2011-03-01	2.12 2011-02-01	▲ 0.5
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	61.4 2011-03-01	60.8 2011-02-01	▲ 0.6
PMI (svc)	index	59.7 2011-03-03	59.4 2011-02-03	→ 0.3
Policy rate	%	0.25 2011-03-31	0.25 2011-02-28	→ 0
2s10s slope	pp	2.67 2011-03-31	2.73 2011-02-28	▼ -0.06
Unemployment	%	9 2011-03-01	9 2011-02-01	→ 0
10Y yield	%	3.47 2011-03-31	3.42 2011-02-28	→ 0.05
2Y yield	%	0.8 2011-03-31	0.69 2011-02-28	▲ 0.11

China

Indicator	Basis	2011-03	2011-02	Change
CPI (YoY)	% YoY	4.9 2011-03-11	4.9 2011-02-15	→ 0
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	53.4 2011-03-01	52.2 2011-02-01	▲ 1.2
PMI (svc)	index	57 2011-03-01	57.2 2011-02-01	→ -0.2
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.73 2011-03-31	0.68 2011-02-28	▲ 0.05
Unemployment	%	not recorded
10Y yield	%	3.91 2011-03-31	3.93 2011-02-28	→ -0.02
2Y yield	%	3.18 2011-03-31	3.25 2011-02-28	▼ -0.07

Euro area

Indicator	Basis	2011-03	2011-02	Change
CPI (YoY)	% YoY	2.6 2011-03-31	2.3 2011-02-28	▲ 0.3
FX vs USD	px	not recorded
GDP	% YoY	0.4 2011-03-01	-0.7 2011-02-01	▲ 1.1
PMI (mfg)	index	57.7 2011-03-24	59 2011-02-21	▼ -1.3
PMI (svc)	index	56.9 2011-03-24	57.2 2011-02-21	→ -0.3
Policy rate	%	1 2011-03-03	1 2011-02-03	→ 0
Unemployment	%	9.9 2011-03-01	10 2011-02-01	→ -0.1
10Y yield	%	4.49 2011-03-01	4.47 2011-02-01	→ 0.01

Japan

Indicator	Basis	2011-03	2011-02	Change
Core CPI	% YoY	-1.3 2011-03-28	-1.3 2011-02-25	→ 0
CPI (YoY)	% YoY	-0.5 2011-03-28	-0.6 2011-02-25	→ 0.1
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-03-14	0.1 2011-02-15	→ 0
Unemployment	%	4.8 2011-03-01	—	—
10Y yield	%	1.21 2011-03-01	1.24 2011-02-01	→ -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.

● 1 active

Euro area

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.

○ no change

Japan

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: 60.8 → 61.4 (+0.6)

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 52.2 → 53.4 (+1.2)

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

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.
Yield-curve inversion (2s10s < 0) The 2s10s curve is positive (not inverted), so this warning channel is dormant. It fires if 2s10s turns negative — watch it because inversion is a classic late-cycle recession warning, though with long and variable lead times.

Euro area

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

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 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.

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 yieldsreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. 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 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. 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)	2.62	1.60	+1.02 ▲	2011-03-01
Core CPI	0.11	0.20	-0.09 ▬	2011-03-01
Core PCE	1.21	1.21	+0.00 ▬	2011-03-01
Policy rate	0.25	0.25	+0.00 ▬	2011-03-06
GDP	2.80	3.20	-0.40 ▼	2011-02-25
PMI (mfg)	61.40	60.80	+0.60 ▲	2011-03-01
PMI (svc)	59.70	59.40	+0.30 ▲	2011-03-03
Unemployment	8.90	9.00	-0.10 ▬	2011-03-04
10Y yield	3.49	3.58	-0.09 ▼	2011-03-04
2Y yield	0.68	0.79	-0.11 ▼	2011-03-04
2s10s slope	2.81	2.79	+0.02 ▬	2011-03-04
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)	53.40	52.20	+1.20 ▲	2011-03-01
PMI (svc)	57.00	57.20	-0.20 ▬	2011-03-01
Unemployment	n/a
10Y yield	3.94	3.93	+0.01 ▬	2011-03-04
2Y yield	3.22	3.23	-0.01 ▬	2011-03-04
2s10s slope	0.72	0.70	+0.02 ▬	2011-03-04
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.30	+0.10 ▲	2011-03-01
Policy rate	1.00	1.00	+0.00 ▬	2011-03-03
GDP	0.40	-0.70	+1.10 ▲	2011-03-01
PMI (mfg)	59.00	59.00	+0.00 ▬	2011-03-01
PMI (svc)	56.80	57.20	-0.40 ▼	2011-03-03
Unemployment	9.90	10.00	-0.10 ▬	2011-03-01
10Y yield	4.49	4.47	+0.01 ▬	2011-03-01
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	4.80	4.90	-0.10 ▼	2011-03-01
10Y yield	1.21	1.24	-0.03 ▬	2011-03-01
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.