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Macro Regime — 2025-W09

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Standing macro backdropBORROWED

Borrowed from its month (2025-03); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2025-03	2025-02	Change
Core CPI	% MoM	0.07 2025-03-01	0.25 2025-02-01	▼ -0.18
Core PCE	% YoY	2.67 2025-03-01	2.97 2025-02-01	▼ -0.3
CPI (YoY)	% YoY	2.38 2025-03-01	2.8 2025-02-01	▼ -0.42
FX vs USD	px	104.21 2025-03-31	107.61 2025-02-28	▼ -3.4
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	50.3 2025-03-03	50.9 2025-02-03	▼ -0.6
PMI (svc)	index	53.5 2025-03-05	52.8 2025-02-05	▲ 0.7
Policy rate	%	4.5 2025-03-31	4.5 2025-02-28	→ 0
2s10s slope	pp	0.34 2025-03-31	0.25 2025-02-28	▲ 0.09
Unemployment	%	4.2 2025-03-01	4.2 2025-02-01	→ 0
10Y yield	%	4.23 2025-03-31	4.24 2025-02-28	→ -0.01
2Y yield	%	3.89 2025-03-31	3.99 2025-02-28	▼ -0.1

China

Indicator	Basis	2025-03	2025-02	Change
CPI (YoY)	% YoY	-0.7 2025-03-09	0.5 2025-02-09	▼ -1.2
FX vs USD	px	7.26 2025-03-31	7.29 2025-02-28	→ -0.02
GDP	% YoY	not recorded
PMI (mfg)	index	50.5 2025-03-01	50.2 2025-02-01	→ 0.3
PMI (svc)	index	50.8 2025-03-31	—	—
Policy rate	% (1Y LPR)	3.1 2025-03-20	3.1 2025-02-20	→ 0
2s10s slope	pp	0.25 2025-03-31	0.29 2025-02-28	→ -0.04
Unemployment	%	5.2 2025-03-01	5.4 2025-02-01	▼ -0.2
10Y yield	%	1.81 2025-03-31	1.72 2025-02-28	▲ 0.1
2Y yield	%	1.57 2025-03-31	1.43 2025-02-28	▲ 0.14

Euro area

Indicator	Basis	2025-03	2025-02	Change
CPI (YoY)	% YoY	2.3 2025-03-19	2.5 2025-02-24	▼ -0.2
FX vs USD	px	1.08 2025-03-31	1.04 2025-02-28	→ 0.04
GDP	% YoY	0.4 2025-03-19	-0.3 2025-02-24	▲ 0.7
PMI (mfg)	index	48.7 2025-03-24	47.3 2025-02-21	▲ 1.4
PMI (svc)	index	50.4 2025-03-24	50.7 2025-02-21	→ -0.3
Policy rate	%	2.65 2025-03-06	—	—
Unemployment	%	6.2 2025-03-04	—	—
10Y yield	%	3.31 2025-03-01	2.99 2025-02-01	▲ 0.33

Japan

Indicator	Basis	2025-03	2025-02	Change
Core CPI	% YoY	1.5 2025-03-21	1.5 2025-02-21	→ 0
CPI (YoY)	% YoY	3.7 2025-03-21	4 2025-02-21	▼ -0.3
FX vs USD	px	149.62 2025-03-31	150.01 2025-02-28	→ -0.4
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.5 2025-03-19	—	—
Unemployment	%	2.5 2025-03-04	—	—
10Y yield	%	1.49 2025-03-01	1.37 2025-02-01	▲ 0.12

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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.

● 2 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

disinflationary stall

contraction · at target · easing

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.

● 3 active

Japan

overheating / late-cycle

unknown · above target · tightening

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.

● 3 active

Mechanisms & channelsL2

United States

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.4 → 0.07 (-0.33)

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).

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 49.3 → 50.9 (+1.6)

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).

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

M3Monetary easing (rate cut)

Trigger: policy_rate: 3.15 → 2.9 (-0.25)

The central bank cuts its policy rate.
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount rates 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: 2.98866 → 3.31377 (+0.325117)

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 yield 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).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 46.6 → 47.3 (+0.7)

Manufacturing PMI is below 50 but rising.
Why: Activity is still contracting in absolute terms (below 50), but the rate of contraction is easing — the second derivative has turned up, which historically clusters near cyclical lows.
Forward-looking investors start to price the trough.
Why: Markets discount the turn before it completes; an improving-but-sub-50 PMI often coincides with the low in cyclical risk assets, well before the PMI itself crosses back above 50.
Early-cycle cyclicals and small-caps tend to lead off the low; defensives' relative edge fades.
Why: The names most beaten down in the contraction have the most operating leverage to even a marginal improvement, so they re-rate first when the deterioration stops.

Helps
early-cycle cyclicalssmall-capsEM equity

Hurts
defensives (relative)long government bonds (if the recovery firms)

Caveat: A one-month uptick that doesn't persist is a head-fake; the turn needs follow-through, and a sub-50 level still means activity is contracting in absolute terms — this is an inflection signal, not an all-clear.

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

Japan

M4Monetary tightening (rate hike)

Trigger: policy_rate: 0.25 → 0.5 (+0.25)

The central bank raises its policy rate.
Why: It lifts the risk-free baseline and signals an intent to drain liquidity to cool demand or inflation.
Discount rates 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).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.37 → 1.485 (+0.115)

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 yield 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

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

M12BOJ normalization / yen-carry risk

Trigger: policy_rate: 0.25 → 0.5 (+0.25)

The BOJ hikes away from its zero/negative-rate regime.
Why: Japan was the world's last anchor of ultra-cheap funding; raising its rate narrows the gap that made the yen the preferred currency to borrow in.
JGB yields rise and the yen tends to strengthen.
Why: Higher policy rates pull Japanese government bond yields up, and a higher yield plus repatriation flows increase demand for yen.
Yen-funded carry tradescarry 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. unwind, transmitting volatility into global risk assets.
Why: Investors who borrowed cheap yen to buy higher-yielding assets abroad face higher funding costs and a rising yen on their debt, forcing them to sell those assets — so the shock spreads well beyond Japan.

Helps
JPYJapanese banksyen-based savers

Hurts
JGBs (yields up)yen-funded carry tradesglobal risk assets (on a disorderly unwind)

Caveat: A small, well-telegraphed hike may be absorbed smoothly; the global-risk transmission only bites on a surprise move or a disorderly carry unwind.

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

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.38	3.00	-0.62 ▼	2025-03-01
Core CPI	0.07	0.40	-0.33 ▼	2025-03-01
Core PCE	2.67	2.60	+0.07 ▬	2025-03-01
Policy rate	4.50	4.50	+0.00 ▬	2025-03-02
GDP	2.30	2.30	+0.00 ▬	2025-02-27
PMI (mfg)	50.90	49.30	+1.60 ▲	2025-02-03
PMI (svc)	52.80	54.10	-1.30 ▼	2025-02-05
Unemployment	4.20	4.00	+0.20 ▲	2025-03-01
10Y yield	4.24	4.29	-0.05 ▬	2025-02-28
2Y yield	3.99	4.07	-0.08 ▼	2025-02-28
2s10s slope	0.25	0.22	+0.03 ▬	2025-02-28
FX vs USD	107.61	107.24	+0.37 ▬	2025-02-28

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.50	0.10	+0.40 ▲	2025-02-09
Policy rate	3.10	3.10	+0.00 ▬	2025-02-20
GDP	5.40	4.60	+0.80 ▲	2025-01-17
PMI (mfg)	50.50	50.20	+0.30 ▬	2025-03-01
PMI (svc)	50.40	50.20	+0.20 ▬	2025-03-01
Unemployment	5.20	5.40	-0.20 ▼	2025-03-01
10Y yield	1.72	1.76	-0.04 ▬	2025-02-28
2Y yield	1.43	1.46	-0.04 ▬	2025-02-28
2s10s slope	0.29	0.29	-0.00 ▬	2025-02-28
FX vs USD	7.29	7.26	+0.03 ▬	2025-02-28

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	2.50	+0.00 ▬	2025-02-24
Policy rate	2.90	3.15	-0.25 ▼	2025-01-30
GDP	-0.30	-0.30	+0.00 ▬	2025-02-24
PMI (mfg)	47.30	46.60	+0.70 ▲	2025-02-21
PMI (svc)	50.70	51.30	-0.60 ▼	2025-02-21
Unemployment	6.30	6.30	+0.00 ▬	2025-01-30
10Y yield	3.31	2.99	+0.33 ▲	2025-03-01
FX vs USD	1.04	1.05	-0.01 ▬	2025-02-28

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	4.00	3.60	+0.40 ▲	2025-02-21
Core CPI	1.50	1.60	-0.10 ▼	2025-02-21
Policy rate	0.50	0.25	+0.25 ▲	2025-01-24
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.50	2.50	+0.00 ▬	2025-01-31
10Y yield	1.49	1.37	+0.12 ▲	2025-03-01
FX vs USD	150.01	148.84	+1.17 ▲	2025-02-28

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.