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Macro Regime — 2021-W22

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↩ Home Macro index ← 2021-06 board

Standing macro backdropBORROWED

Borrowed from its month (2021-06); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2021-06	2021-05	Change
Core CPI	% MoM	0.79 2021-06-01	0.66 2021-05-01	▲ 0.13
Core PCE	% YoY	3.86 2021-06-01	3.54 2021-05-01	▲ 0.32
CPI (YoY)	% YoY	5.3 2021-06-01	4.92 2021-05-01	▲ 0.38
FX vs USD	px	92.44 2021-06-30	90.03 2021-05-28	▲ 2.41
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	61.2 2021-06-01	60.7 2021-05-03	▲ 0.5
PMI (svc)	index	64 2021-06-03	62.7 2021-05-05	▲ 1.3
Policy rate	%	0.25 2021-06-30	0.25 2021-05-31	→ 0
2s10s slope	pp	1.2 2021-06-30	1.44 2021-05-28	▼ -0.24
Unemployment	%	5.9 2021-06-01	5.8 2021-05-01	→ 0.1
10Y yield	%	1.45 2021-06-30	1.58 2021-05-28	▼ -0.13
2Y yield	%	0.25 2021-06-30	0.14 2021-05-28	▲ 0.11

China

Indicator	Basis	2021-06	2021-05	Change
CPI (YoY)	% YoY	1.3 2021-06-09	0.9 2021-05-11	▲ 0.4
FX vs USD	px	6.46 2021-06-30	6.37 2021-05-31	→ 0.1
GDP	% YoY	not recorded
PMI (mfg)	index	50.9 2021-06-01	51 2021-05-01	→ -0.1
PMI (svc)	index	53.5 2021-06-30	55.2 2021-05-31	▼ -1.7
Policy rate	% (1Y LPR)	3.85 2021-06-21	3.85 2021-05-20	→ 0
2s10s slope	pp	0.42 2021-06-30	0.39 2021-05-31	→ 0.03
Unemployment	%	5 2021-06-01	5 2021-05-01	→ 0
10Y yield	%	3.08 2021-06-30	3.04 2021-05-31	→ 0.03
2Y yield	%	2.66 2021-06-30	2.66 2021-05-31	→ 0

Euro area

Indicator	Basis	2021-06	2021-05	Change
CPI (YoY)	% YoY	1.9 2021-06-30	1.6 2021-05-19	▲ 0.3
FX vs USD	px	1.19 2021-06-30	1.22 2021-05-31	→ -0.03
GDP	% YoY	0.3 2021-06-30	0.6 2021-05-19	▼ -0.3
PMI (mfg)	index	63.1 2021-06-23	62.8 2021-05-21	→ 0.3
PMI (svc)	index	58 2021-06-23	55.1 2021-05-21	▲ 2.9
Policy rate	%	0 2021-06-10	—	—
Unemployment	%	8 2021-06-01	—	—
10Y yield	%	0.3 2021-06-01	0.38 2021-05-01	▼ -0.07

Japan

Indicator	Basis	2021-06	2021-05	Change
Core CPI	% YoY	-1.1 2021-06-18	-1.2 2021-05-21	→ 0.1
CPI (YoY)	% YoY	-0.8 2021-06-18	-1.1 2021-05-21	▲ 0.3
FX vs USD	px	110.54 2021-06-30	109.91 2021-05-31	▲ 0.63
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2021-06-18	—	—
Unemployment	%	3 2021-06-29	2.8 2021-05-28	▲ 0.2
10Y yield	%	0.05 2021-06-01	0.08 2021-05-01	→ -0.03

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.

● 1 active

China

disinflationary stall

stall · below target · on hold

Sub-trend growth with low, easing inflation. Duration and quality tend to lead; cyclicals lag until growth re-accelerates. Policy easing is the usual circuit-breaker.

○ no change

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.

● 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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 60.7 → 61.2 (+0.5)

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

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.

Euro area

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 62.8 → 63.1 (+0.3)

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).

Japan

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0 → -1.2 (-1.2)

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)	5.30	4.20	+1.10 ▲	2021-06-01
Core CPI	0.79	0.90	-0.11 ▼	2021-06-01
Core PCE	3.86	3.10	+0.76 ▲	2021-06-01
Policy rate	0.25	0.25	+0.00 ▬	2021-06-06
GDP	6.40	6.40	+0.00 ▬	2021-05-27
PMI (mfg)	61.20	60.70	+0.50 ▲	2021-06-01
PMI (svc)	64.00	62.70	+1.30 ▲	2021-06-03
Unemployment	5.80	5.90	-0.10 ▼	2021-06-04
10Y yield	1.56	1.63	-0.07 ▼	2021-06-04
2Y yield	0.14	0.16	-0.02 ▬	2021-06-04
2s10s slope	1.42	1.47	-0.05 ▼	2021-06-04
FX vs USD	90.14	90.50	-0.36 ▬	2021-06-04

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.90	0.40	+0.50 ▲	2021-05-11
Policy rate	3.85	3.85	+0.00 ▬	2021-05-20
GDP	18.30	6.50	+11.80 ▲	2021-04-16
PMI (mfg)	50.90	51.00	-0.10 ▬	2021-06-01
PMI (svc)	55.20	54.90	+0.30 ▲	2021-05-31
Unemployment	5.00	5.00	+0.00 ▬	2021-06-01
10Y yield	3.09	3.06	+0.04 ▬	2021-06-04
2Y yield	2.69	2.66	+0.03 ▬	2021-06-04
2s10s slope	0.40	0.39	+0.01 ▬	2021-06-04
FX vs USD	6.40	6.38	+0.02 ▬	2021-06-04

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.00	1.60	+0.40 ▲	2021-06-01
Policy rate	0.00	0.00	+0.00 ▬	2021-04-22
GDP	0.30	0.60	-0.30 ▼	2021-06-01
PMI (mfg)	63.10	62.80	+0.30 ▲	2021-06-01
PMI (svc)	55.20	55.10	+0.10 ▬	2021-06-03
Unemployment	8.00	8.10	-0.10 ▬	2021-06-01
10Y yield	0.30	0.38	-0.07 ▼	2021-06-01
FX vs USD	1.21	1.22	-0.01 ▬	2021-06-04

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-1.10	-0.40	-0.70 ▼	2021-05-21
Core CPI	-1.20	0.00	-1.20 ▼	2021-05-21
Policy rate	-0.10	-0.10	+0.00 ▬	2021-04-27
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.80	2.60	+0.20 ▲	2021-05-28
10Y yield	0.05	0.08	-0.03 ▬	2021-06-01
FX vs USD	110.27	109.60	+0.67 ▲	2021-06-04

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.