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Macro Regime — 2011-W44

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↩ Home Macro index ← 2011-11 board

Standing macro backdropBORROWED

Borrowed from its month (2011-11); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2011-11	2011-10	Change
Core CPI	% MoM	0.17 2011-11-01	0.17 2011-10-01	→ 0
Core PCE	% YoY	1.83 2011-11-01	1.74 2011-10-01	→ 0.09
CPI (YoY)	% YoY	3.45 2011-11-01	3.52 2011-10-01	→ -0.07
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	50.8 2011-11-01	51.6 2011-10-03	▼ -0.8
PMI (svc)	index	52.9 2011-11-03	53 2011-10-05	→ -0.1
Policy rate	%	0.25 2011-11-30	0.25 2011-10-31	→ 0
2s10s slope	pp	1.83 2011-11-30	1.92 2011-10-31	▼ -0.09
Unemployment	%	8.6 2011-11-01	8.8 2011-10-01	▼ -0.2
10Y yield	%	2.08 2011-11-30	2.17 2011-10-31	▼ -0.09
2Y yield	%	0.25 2011-11-30	0.25 2011-10-31	→ 0

China

Indicator	Basis	2011-11	2011-10	Change
CPI (YoY)	% YoY	5.5 2011-11-09	6.1 2011-10-14	▼ -0.6
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	49 2011-11-01	50.4 2011-10-01	▼ -1.4
PMI (svc)	index	55.5 2011-11-01	55.8 2011-10-01	→ -0.3
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.62 2011-11-30	0.34 2011-10-31	▲ 0.28
Unemployment	%	not recorded
10Y yield	%	3.61 2011-11-30	3.76 2011-10-31	▼ -0.15
2Y yield	%	2.99 2011-11-30	3.42 2011-10-31	▼ -0.43

Euro area

Indicator	Basis	2011-11	2011-10	Change
CPI (YoY)	% YoY	3 2011-11-30	3 2011-10-31	→ 0
FX vs USD	px	not recorded
GDP	% YoY	0.3 2011-11-01	0.8 2011-10-01	▼ -0.5
PMI (mfg)	index	46.4 2011-11-23	47.3 2011-10-24	▼ -0.9
PMI (svc)	index	47.8 2011-11-23	47.2 2011-10-24	▲ 0.6
Policy rate	%	1.25 2011-11-03	1.5 2011-10-06	▼ -0.25
Unemployment	%	10.3 2011-11-30	10.2 2011-10-31	→ 0.1
10Y yield	%	4.39 2011-11-01	4.08 2011-10-01	▲ 0.31

Japan

Indicator	Basis	2011-11	2011-10	Change
Core CPI	% YoY	-1 2011-11-25	-0.4 2011-10-26	▼ -0.6
CPI (YoY)	% YoY	-0.2 2011-11-25	0 2011-10-26	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2011-11-16	0.1 2011-10-27	→ 0
Unemployment	%	4.4 2011-11-29	4.2 2011-10-30	▲ 0.2
10Y yield	%	1.06 2011-11-01	1.04 2011-10-01	→ 0.02

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

stagflationary

contraction · above target · easing

Contracting activity *and* above-target inflation — the hardest mix: the central bank can't ease freely. Real assets, energy and value tend to hold up better than long-duration growth and bonds.

● 2 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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 50.4 → 49 (-1.4)

Manufacturing PMIPMI — Purchasing Managers' Index. Above 50 = the sector is expanding vs last month; below 50 = contracting. A timely read on activity. 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 defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows. 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.
Cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary., 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

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.
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

M3Monetary easing (rate cut)

Trigger: policy_rate: 1.5 → 1.25 (-0.25)

The central bank cuts 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: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
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. fall across asset classes and liquidity expectations rise.
Why: A lower risk-free rate raises the present value of future cash flows everywhere, and a cut signals the bank will keep conditions loose.
Risk assets re-rate up; the currency softens.
Why: Cheaper money flows toward higher-returning assets, and a lower local rate narrows the yield advantage of holding the currency, so it weakens.
The weaker currency lifts exporters, commodities, gold, and EM.
Why: Commodities priced in the easing currency rise in that currency; exporters gain competitiveness; and EM borrowers with dollar debt benefit as the dollar softens.

Helps
equities (broadly)goldEM assetslong-duration bondscommodities

Hurts
the easing currencycash/money-market real yield

Caveat: If the cut is an emergency response to a fast-deteriorating outlook ('cutting into a recession'), equities can fall even as bonds rally — the growth signal outweighs the liquidity boost.

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

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 4.07776 → 4.39175 (+0.313988)

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate 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

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)	3.45	3.90	-0.45 ▼	2011-11-01
Core CPI	0.17	0.10	+0.07 ▬	2011-11-01
Core PCE	1.83	1.74	+0.09 ▬	2011-11-01
Policy rate	0.25	0.25	+0.00 ▬	2011-11-06
GDP	2.50	4.60	-2.10 ▼	2011-10-27
PMI (mfg)	50.80	51.60	-0.80 ▼	2011-11-01
PMI (svc)	52.90	53.00	-0.10 ▬	2011-11-03
Unemployment	9.00	8.60	+0.40 ▲	2011-11-04
10Y yield	2.06	2.09	-0.03 ▬	2011-11-04
2Y yield	0.22	0.24	-0.02 ▬	2011-11-04
2s10s slope	1.84	1.85	-0.01 ▬	2011-11-04
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	6.10	6.20	-0.10 ▼	2011-10-14
Policy rate	n/a
GDP	9.10	9.50	-0.40 ▼	2011-10-18
PMI (mfg)	49.00	50.40	-1.40 ▼	2011-11-01
PMI (svc)	55.50	55.80	-0.30 ▬	2011-11-01
Unemployment	n/a
10Y yield	3.72	3.72	-0.01 ▬	2011-11-04
2Y yield	3.27	3.27	+0.00 ▬	2011-11-04
2s10s slope	0.44	0.45	-0.01 ▬	2011-11-04
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.00	3.00	+0.00 ▬	2011-10-31
Policy rate	1.25	1.50	-0.25 ▼	2011-11-03
GDP	0.30	0.80	-0.50 ▼	2011-11-01
PMI (mfg)	47.10	47.30	-0.20 ▬	2011-11-02
PMI (svc)	46.40	47.20	-0.80 ▼	2011-11-04
Unemployment	10.20	10.00	+0.20 ▲	2011-10-31
10Y yield	4.39	4.08	+0.31 ▲	2011-11-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.00	0.20	-0.20 ▼	2011-10-26
Core CPI	-0.40	-0.50	+0.10 ▬	2011-10-26
Policy rate	0.10	0.10	+0.00 ▬	2011-10-27
GDP	n/a
PMI (mfg)	n/a
Unemployment	4.20	4.50	-0.30 ▼	2011-10-30
10Y yield	1.06	1.04	+0.02 ▬	2011-11-01
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.