Macro Intelligence · Weekly · deep read

Macro Regime — 2011-W17

→

US · China · EU · Japan · mechanism-first, taught

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2011-05 board

Standing macro backdropBORROWED

Borrowed from its month (2011-05); the weekly reads the standing object, it does not recompute the aggregate.

United States: overheating / late-cycle
China: overheating / late-cycle
Euro area: overheating / late-cycle
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2011-05	2011-04	Change
Core CPI	% MoM	0.2 2011-05-01	0.12 2011-04-01	→ 0.08
Core PCE	% YoY	1.52 2011-05-01	1.39 2011-04-01	▲ 0.13
CPI (YoY)	% YoY	3.46 2011-05-01	3.08 2011-04-01	▲ 0.38
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	60.4 2011-05-02	61.2 2011-04-01	▼ -0.8
PMI (svc)	index	52.8 2011-05-04	57.3 2011-04-05	▼ -4.5
Policy rate	%	0.25 2011-05-31	0.25 2011-04-30	→ 0
2s10s slope	pp	2.6 2011-05-31	2.71 2011-04-29	▼ -0.11
Unemployment	%	9 2011-05-01	9.1 2011-04-01	→ -0.1
10Y yield	%	3.05 2011-05-31	3.32 2011-04-29	▼ -0.27
2Y yield	%	0.45 2011-05-31	0.61 2011-04-29	▼ -0.16

China

Indicator	Basis	2011-05	2011-04	Change
CPI (YoY)	% YoY	5.3 2011-05-11	5.4 2011-04-15	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	52 2011-05-01	52.9 2011-04-01	▼ -0.9
PMI (svc)	index	58.2 2011-05-01	59.2 2011-04-01	▼ -1
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.65 2011-05-31	0.77 2011-04-29	▼ -0.12
Unemployment	%	not recorded
10Y yield	%	3.83 2011-05-31	3.87 2011-04-29	→ -0.04
2Y yield	%	3.18 2011-05-31	3.1 2011-04-29	▲ 0.08

Euro area

Indicator	Basis	2011-05	2011-04	Change
CPI (YoY)	% YoY	2.7 2011-05-31	2.8 2011-04-29	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	0.6 2011-05-01	1.4 2011-04-01	▼ -0.8
PMI (mfg)	index	54.8 2011-05-23	57.7 2011-04-19	▼ -2.9
PMI (svc)	index	55.4 2011-05-23	56.9 2011-04-19	▼ -1.5
Policy rate	%	1.25 2011-05-05	1.25 2011-04-07	→ 0
Unemployment	%	9.9 2011-05-31	9.9 2011-04-29	→ 0
10Y yield	%	4.37 2011-05-01	4.66 2011-04-01	▼ -0.29

Japan

Indicator	Basis	2011-05	2011-04	Change
Core CPI	% YoY	-1.1 2011-05-26	-1.4 2011-04-25	▲ 0.3
CPI (YoY)	% YoY	-0.4 2011-05-26	-0.5 2011-04-25	→ 0.1
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-05-20	0.1 2011-04-28	→ 0
Unemployment	%	4.7 2011-05-30	4.7 2011-04-29	→ 0
10Y yield	%	1.12 2011-05-01	1.22 2011-04-01	▼ -0.1

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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

China

overheating / late-cycle

expansion · above target · on hold

○ no change

Euro area

overheating / late-cycle

expansion · above target · tightening

● 1 active

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.

○ no change

Mechanisms & channelsL2

United States

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.

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

M4Monetary tightening (rate hike)

Trigger: policy_rate: 1 → 1.25 (+0.25)

The central bank raises its 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..
Why: It lifts the risk-free baseline and signals an intent to drain liquidity to cool demand or inflation.
Discount ratesdiscount 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. rise; the most rate-sensitive assets are hit first.
Why: A higher risk-free rate lowers the present value of future cash flows, and long-duration growth, long bonds, and non-yielding gold have the most distant or rate-sensitive payoffs.
The currency firms; exporters and dollar-debt EM borrowers are pressured.
Why: A wider yield advantage pulls in capital and strengthens the currency, which hurts exporters' competitiveness and raises the real burden on dollar-denominated EM debt.

Helps
the tightening currencycash/short-duration real yieldbanks (early-cycle)

Hurts
long-duration growth equitieslong-dated bondsgoldEM assets

Caveat: Late in a hiking cycle, a hike can paradoxically rally bonds if the market reads it as the last one and pulls forward the eventual cuts.

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.
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).

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)	3.46	2.70	+0.76 ▲	2011-05-01
Core CPI	0.20	0.10	+0.10 ▬	2011-05-01
Core PCE	1.52	1.39	+0.13 ▲	2011-05-01
Policy rate	0.25	0.25	+0.00 ▬	2011-05-01
GDP	1.80	2.70	-0.90 ▼	2011-04-28
PMI (mfg)	61.20	61.40	-0.20 ▬	2011-04-01
PMI (svc)	57.30	59.70	-2.40 ▼	2011-04-05
Unemployment	9.00	9.10	-0.10 ▬	2011-05-01
10Y yield	3.32	3.34	-0.02 ▬	2011-04-29
2Y yield	0.61	0.62	-0.01 ▬	2011-04-29
2s10s slope	2.71	2.72	-0.01 ▬	2011-04-29
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	5.40	4.90	+0.50 ▲	2011-04-15
Policy rate	n/a
GDP	9.70	9.80	-0.10 ▬	2011-04-15
PMI (mfg)	52.00	52.90	-0.90 ▼	2011-05-01
PMI (svc)	58.20	59.20	-1.00 ▼	2011-05-01
Unemployment	n/a
10Y yield	3.87	3.87	+0.00 ▬	2011-04-29
2Y yield	3.10	3.10	-0.00 ▬	2011-04-29
2s10s slope	0.77	0.77	+0.00 ▬	2011-04-29
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.80	2.70	+0.10 ▬	2011-04-29
Policy rate	1.25	1.00	+0.25 ▲	2011-04-07
GDP	0.60	1.40	-0.80 ▼	2011-05-01
PMI (mfg)	57.70	57.50	+0.20 ▬	2011-04-19
PMI (svc)	56.90	57.20	-0.30 ▼	2011-04-19
Unemployment	9.90	9.90	+0.00 ▬	2011-04-29
10Y yield	4.37	4.66	-0.29 ▼	2011-05-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.50	-0.50	+0.00 ▬	2011-04-25
Core CPI	-1.40	-1.30	-0.10 ▬	2011-04-25
Policy rate	0.10	0.10	+0.00 ▬	2011-04-28
GDP	n/a
PMI (mfg)	n/a
Unemployment	4.70	4.70	+0.00 ▬	2011-04-29
10Y yield	1.12	1.22	-0.10 ▼	2011-05-01
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.