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Macro Regime — 2011-W35

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↩ Home Macro index ← 2011-09 board

Standing macro backdropBORROWED

Borrowed from its month (2011-09); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2011-09	2011-08	Change
Core CPI	% MoM	0.11 2011-09-01	0.29 2011-08-01	▼ -0.18
Core PCE	% YoY	1.85 2011-09-01	1.84 2011-08-01	→ 0.01
CPI (YoY)	% YoY	3.81 2011-09-01	3.75 2011-08-01	→ 0.06
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	50.6 2011-09-01	50.9 2011-08-01	→ -0.3
PMI (svc)	index	53.3 2011-09-06	52.7 2011-08-03	▲ 0.6
Policy rate	%	0.25 2011-09-30	0.25 2011-08-31	→ 0
2s10s slope	pp	1.67 2011-09-30	2.03 2011-08-31	▼ -0.36
Unemployment	%	9 2011-09-01	9 2011-08-01	→ 0
10Y yield	%	1.92 2011-09-30	2.23 2011-08-31	▼ -0.31
2Y yield	%	0.25 2011-09-30	0.2 2011-08-31	→ 0.05

China

Indicator	Basis	2011-09	2011-08	Change
CPI (YoY)	% YoY	6.2 2011-09-09	6.5 2011-08-09	▼ -0.3
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	51.2 2011-09-01	50.9 2011-08-01	→ 0.3
PMI (svc)	index	57.1 2011-09-01	57.3 2011-08-01	→ -0.2
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.19 2011-09-30	0.21 2011-08-31	→ -0.02
Unemployment	%	not recorded
10Y yield	%	3.86 2011-09-30	4.11 2011-08-31	▼ -0.24
2Y yield	%	3.67 2011-09-30	3.89 2011-08-31	▼ -0.22

Euro area

Indicator	Basis	2011-09	2011-08	Change
CPI (YoY)	% YoY	3 2011-09-30	2.5 2011-08-31	▲ 0.5
FX vs USD	px	not recorded
GDP	% YoY	0.2 2011-09-01	-0.6 2011-08-01	▲ 0.8
PMI (mfg)	index	48.4 2011-09-22	49.7 2011-08-23	▼ -1.3
PMI (svc)	index	49.1 2011-09-22	51.5 2011-08-23	▼ -2.4
Policy rate	%	1.5 2011-09-08	1.5 2011-08-04	→ 0
Unemployment	%	10 2011-09-30	10 2011-08-31	→ 0
10Y yield	%	4.03 2011-09-01	4.2 2011-08-01	▼ -0.17

Japan

Indicator	Basis	2011-09	2011-08	Change
Core CPI	% YoY	-0.5 2011-09-25	-0.5 2011-08-25	→ 0
CPI (YoY)	% YoY	0.2 2011-09-25	0.2 2011-08-25	→ 0
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-09-07	0.1 2011-08-04	→ 0
Unemployment	%	4.5 2011-09-29	4.7 2011-08-29	▼ -0.2
10Y yield	%	0.97 2011-09-01	1.02 2011-08-01	→ -0.05

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

overheating / late-cycle

stall · 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

stall · above target · on hold

● 1 active

Euro area

stall-speed, at target

stall · at target · on hold

Growth hovering near flat with inflation roughly at target. A balanced, low-conviction regime — direction depends on which way growth breaks next; watch PMI for the tell.

● 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.

● 1 active

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 50.9 → 51.2 (+0.3)

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

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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 49.7 → 49 (-0.7)

Manufacturing PMI is below 50 and still falling.
Why: Below 50 means more firms are contracting than expanding; *falling* means the contraction is deepening, not bottoming — that combination is what leads earnings revisions down.
Investors rotate toward defensives and government bonds.
Why: When growth is deteriorating, steady-demand sectors (staples, utilities, healthcare) hold earnings better, and government bonds act as a hedge that rallies if the slowdown deepens further.
Cyclicals, small-caps, EM and industrial commodities underperform.
Why: These are geared to the physical cycle and to leverage, so worsening activity hits their earnings and risk appetite hardest; commodity demand softens with industrial output.

Helps
defensive sectors (staples, utilities, healthcare)long government bondsquality/large-cap

Hurts
cyclicalssmall-capsEM equityindustrial commodities

Caveat: A shallow dip just below 50 that quickly reverses ('soft patch') doesn't trigger the full defensive rotation; the level must persist.

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 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

M1Inflation surprise (upside)

Trigger: core_cpi: -0.8 → -0.5 (+0.3)

Core inflation comes in higher than the prior reading.
Why: Core strips out food and energy, so a move in it signals persistent, broad price pressure rather than a one-off in volatile items — the kind a central bank reacts to.
The market reprices the policy-rate path higher.
Why: If inflation is stickier than thought, the central bank must keep rates higher for longer to cool it; traders bake that expectation into the whole rate curve immediately, before any actual hike.
Real yieldsreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. rise, not just nominal yieldsnominal yield — The headline interest rate on a bond, before subtracting inflation..
Why: The inflation is already in the print, so the jump in nominal yields isn't just compensating for higher inflation — it's a genuine rise in the inflation-adjusted return demanded by lenders.
A higher real yield is a higher 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. on future cash flows.
Why: Money earned years from now is discounted back to today at the real rate; when that rate rises, distant cash flows shrink in present-value terms more than near ones.
Long-duration growth equities de-rate hardest; banks and value hold up; the currency firms.
Why: Growth stocks are valued mostly on far-future profits, so a higher discount rate hits them most. Banks earn more as rates rise (wider margins), and value/cyclical earnings sit nearer in time. Higher local rates also pull in foreign capital, lifting the currency.

Helps
financialsvalueUSDshort-duration bonds

Hurts
long-duration growth equitieslong-dated government bondsgold (in real terms)

Caveat: Misfires if the print is read as one-off/transitory, or if growth is simultaneously rolling over (a stagflation mix), where cyclicals don't get the usual lift.

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

What would change the read

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.
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)	3.81	3.60	+0.21 ▲	2011-09-01
Core CPI	0.11	0.20	-0.09 ▬	2011-09-01
Core PCE	1.85	1.84	+0.01 ▬	2011-09-01
Policy rate	0.25	0.25	+0.00 ▬	2011-09-04
GDP	1.00	1.30	-0.30 ▼	2011-08-26
PMI (mfg)	50.60	50.90	-0.30 ▬	2011-09-01
PMI (svc)	52.70	53.30	-0.60 ▼	2011-08-03
Unemployment	9.10	9.00	+0.10 ▬	2011-09-02
10Y yield	2.02	2.15	-0.13 ▼	2011-09-02
2Y yield	0.20	0.19	+0.01 ▬	2011-09-02
2s10s slope	1.82	1.96	-0.14 ▼	2011-09-02
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	6.50	6.40	+0.10 ▬	2011-08-09
Policy rate	n/a
GDP	9.50	9.70	-0.20 ▬	2011-07-13
PMI (mfg)	51.20	50.90	+0.30 ▲	2011-09-01
PMI (svc)	57.10	57.30	-0.20 ▬	2011-09-01
Unemployment	n/a
10Y yield	4.07	4.07	-0.00 ▬	2011-09-02
2Y yield	3.87	3.87	+0.00 ▬	2011-09-02
2s10s slope	0.20	0.20	-0.00 ▬	2011-09-02
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	2.50	+0.00 ▬	2011-08-31
Policy rate	1.50	1.50	+0.00 ▬	2011-08-04
GDP	0.20	-0.60	+0.80 ▲	2011-09-01
PMI (mfg)	49.00	49.70	-0.70 ▼	2011-09-01
PMI (svc)	51.50	51.60	-0.10 ▬	2011-08-23
Unemployment	10.00	9.90	+0.10 ▬	2011-08-31
10Y yield	4.03	4.20	-0.17 ▼	2011-09-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.20	-0.40	+0.60 ▲	2011-08-25
Core CPI	-0.50	-0.80	+0.30 ▲	2011-08-25
Policy rate	0.10	0.10	+0.00 ▬	2011-08-04
GDP	n/a
PMI (mfg)	n/a
Unemployment	4.70	4.70	+0.00 ▬	2011-08-29
10Y yield	0.97	1.02	-0.05 ▬	2011-09-01
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.