Macro Intelligence · Weekly · deep read

Macro Regime — 2021-W12

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2021-03 board

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

Standing macro backdropBORROWED

Borrowed from its month (2021-03); the weekly reads the standing object, it does not recompute the aggregate.

United States: expansion, at target
China: deflation watch
Euro area: goldilocks / reflation
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2021-03	2021-02	Change
Core CPI	% MoM	0.25 2021-03-01	0.15 2021-02-01	→ 0.1
Core PCE	% YoY	2.2 2021-03-01	1.71 2021-02-01	▲ 0.49
CPI (YoY)	% YoY	2.67 2021-03-01	1.67 2021-02-01	▲ 1
FX vs USD	px	93.23 2021-03-31	90.93 2021-02-26	▲ 2.3
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	60.8 2021-03-01	58.7 2021-02-01	▲ 2.1
PMI (svc)	index	55.3 2021-03-03	58.7 2021-02-03	▼ -3.4
Policy rate	%	0.25 2021-03-31	0.25 2021-02-28	→ 0
2s10s slope	pp	1.58 2021-03-31	1.3 2021-02-26	▲ 0.28
Unemployment	%	6.1 2021-03-01	6.2 2021-02-01	→ -0.1
10Y yield	%	1.74 2021-03-31	1.44 2021-02-26	▲ 0.3
2Y yield	%	0.16 2021-03-31	0.14 2021-02-26	→ 0.02

China

Indicator	Basis	2021-03	2021-02	Change
CPI (YoY)	% YoY	-0.2 2021-03-10	-0.3 2021-02-10	→ 0.1
FX vs USD	px	6.57 2021-03-31	6.45 2021-02-26	→ 0.12
GDP	% YoY	not recorded
PMI (mfg)	index	51.9 2021-03-01	50.6 2021-02-01	▲ 1.3
PMI (svc)	index	56.3 2021-03-31	51.4 2021-02-28	▲ 4.9
Policy rate	% (1Y LPR)	3.85 2021-03-22	3.85 2021-02-20	→ 0
2s10s slope	pp	0.42 2021-03-31	0.49 2021-02-26	▼ -0.07
Unemployment	%	5.3 2021-03-01	5.5 2021-02-01	▼ -0.2
10Y yield	%	3.19 2021-03-31	3.28 2021-02-26	▼ -0.09
2Y yield	%	2.76 2021-03-31	2.79 2021-02-26	→ -0.02

Euro area

Indicator	Basis	2021-03	2021-02	Change
CPI (YoY)	% YoY	1.3 2021-03-31	0.9 2021-02-23	▲ 0.4
FX vs USD	px	1.17 2021-03-31	1.22 2021-02-26	→ -0.04
GDP	% YoY	0.9 2021-03-31	0.2 2021-02-23	▲ 0.7
PMI (mfg)	index	62.4 2021-03-24	57.7 2021-02-19	▲ 4.7
PMI (svc)	index	48.8 2021-03-24	44.7 2021-02-19	▲ 4.1
Policy rate	%	0 2021-03-11	—	—
Unemployment	%	8.1 2021-03-04	8.3 2021-02-01	▼ -0.2
10Y yield	%	0.15 2021-03-01	0.06 2021-02-01	▲ 0.08

Japan

Indicator	Basis	2021-03	2021-02	Change
Core CPI	% YoY	0.1 2021-03-19	0.1 2021-02-19	→ 0
CPI (YoY)	% YoY	-0.5 2021-03-19	-0.7 2021-02-19	▲ 0.2
FX vs USD	px	110.31 2021-03-31	106.38 2021-02-26	▲ 3.93
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2021-03-19	—	—
Unemployment	%	2.9 2021-03-30	—	—
10Y yield	%	0.12 2021-03-01	0.15 2021-02-01	→ -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

deflation watch

stall · 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

Euro area ⚠ stale

goldilocks / reflation

expansion · below target · on hold

Improving growth with inflation at/below target — the benign mix. Cyclicals, small-caps and risk assets broadly tend to lead; long bonds lag as growth firms.

● 1 active

Japan ⚠ stale

deflation watch

unknown · deflation risk · on hold

○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 58.7 → 60.8 (+2.1)

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: 50.6 → 51.9 (+1.3)

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

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 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).

Euro area

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 57.9 → 62.4 (+4.5)

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

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 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)	1.70	2.67	-0.97 ▼	2021-03-10
Core CPI	0.10	0.25	-0.15 ▼	2021-03-10
Core PCE	1.40	2.20	-0.80 ▼	2021-03-26
Policy rate	0.25	0.25	+0.00 ▬	2021-03-28
GDP	4.30	4.10	+0.20 ▲	2021-03-25
PMI (mfg)	60.80	58.70	+2.10 ▲	2021-03-01
PMI (svc)	55.30	58.70	-3.40 ▼	2021-03-03
Unemployment	6.20	6.10	+0.10 ▲	2021-03-05
10Y yield	1.67	1.63	+0.04 ▬	2021-03-26
2Y yield	0.14	0.14	+0.00 ▬	2021-03-26
2s10s slope	1.53	1.49	+0.04 ▬	2021-03-26
FX vs USD	92.77	92.88	-0.11 ▬	2021-03-26

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.20	-0.30	+0.10 ▬	2021-03-10
Policy rate	3.85	3.85	+0.00 ▬	2021-03-22
GDP	6.50	4.90	+1.60 ▲	2021-01-18
PMI (mfg)	51.90	50.60	+1.30 ▲	2021-03-01
PMI (svc)	51.40	52.40	-1.00 ▼	2021-02-28
Unemployment	5.30	5.50	-0.20 ▼	2021-03-01
10Y yield	3.20	3.19	+0.01 ▬	2021-03-26
2Y yield	2.80	2.78	+0.02 ▬	2021-03-26
2s10s slope	0.40	0.41	-0.01 ▬	2021-03-26
FX vs USD	6.54	6.51	+0.03 ▬	2021-03-26

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.90	0.90	+0.00 ▬	2021-03-17
Policy rate	0.00	0.00	+0.00 ▬	2021-03-11
GDP	0.20	0.20	+0.00 ▬	2021-03-17
PMI (mfg)	62.40	57.90	+4.50 ▲	2021-03-24
PMI (svc)	48.80	45.70	+3.10 ▲	2021-03-24
Unemployment	8.10	8.30	-0.20 ▼	2021-03-04
10Y yield	0.15	0.06	+0.08 ▲	2021-03-01 ⚠⚠
FX vs USD	1.18	1.18	-0.00 ▬	2021-03-26

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.50	-0.70	+0.20 ▲	2021-03-19
Core CPI	0.10	0.10	+0.00 ▬	2021-03-19
Policy rate	-0.10	-0.10	+0.00 ▬	2021-03-19
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.90	2.90	+0.00 ▬	2021-03-02
10Y yield	0.12	0.15	-0.03 ▬	2021-03-01 ⚠⚠
FX vs USD	109.18	108.79	+0.39 ▬	2021-03-26

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.