Global Macro Analysis

Overview

Builds a macro analysis framework from three dimensions: central-bank policy, exchange-rate regimes, and geopolitics. Outputs quantifiable macro factor signals to drive cross-asset allocation decisions. Core logic: macro cycles determine major asset direction, while micro-level timing is delegated to other skills.

Core Concepts

1. Central Bank Policy Transmission Chain

Policy-rate changes → government bond yield curve → credit spreads → financing costs for the real economy → corporate earnings → equity valuation

Monitoring framework for the three major central banks:

Central Bank	Core Indicators	Forward Signals	Lagging Confirmation
Federal Reserve (Fed)	FFR, dot plot, SEP	CME FedWatch probabilities	nonfarm payrolls / CPI / PCE
European Central Bank (ECB)	Main refinancing rate	Eurozone PMI, HICP	credit growth
Bank of Japan (BOJ)	YCC band, policy rate	JPY exchange rate, JGB yields	core CPI

Historical transmission of Fed hiking / cutting cycles to China A-shares (empirical):

• Late in a Fed hiking cycle (the last 1-2 hikes), China A-shares often have already priced it in, and the average drawdown of the CSI 300 narrows to -3%
• In the 3 months after the first Fed cut, the CSI 300 has averaged +8.2% (mean of the 2001 / 2007 / 2019 cycles)
• But rate cuts do not automatically mean gains. In 2008, cuts came with recession and China A-shares still fell

2. Exchange Rate Forecasting Framework

Three-layer model:

Model	Applicable Horizon	Core Variables	Accuracy
Purchasing Power Parity (PPP)	3-5 years	CPI gap between two countries	Long-term anchor
Interest Parity (UIP/CIP)	3-12 months	rate differential + forward premium/discount	Medium-term direction
BEER model	1-3 years	terms of trade + net foreign inflows + productivity	Equilibrium estimate

USD/CNY practical checklist:

• China-US 10Y spread > 0: appreciation pressure on the RMB (capital inflows)
• China-US 10Y spread < -150bp: rising depreciation pressure on the RMB
• Net FX settlement surplus / deficit: directly reflects conversion direction of corporates and households
• PBOC fixing vs market expectation: signal that the countercyclical factor has been activated

3. Geopolitical Risk Assessment

Quantitative approach (proxy for the GPR index):

# Geopolitical risk proxy indicators
risk_indicators = {
    "vix": "Fear index > 25 = high risk",
    "gold_oil_ratio": "Gold / oil > 25 = rising risk aversion",
    "usd_index": "DXY jump > 2% / week = capital flowing back to USD",
    "credit_spread": "IG spread > 150bp = credit tightening",
    "em_spread": "EMBI spread widening > 50bp / month = emerging-market stress"
}

Typical asset impacts of geopolitical events (historical averages):

• Local conflicts: gold +3-5%, oil +5-15%, equities -2-5%, with impact lasting 1-4 weeks
• Trade friction: affected sectors -10-20%, beneficiary substitute sectors +5-10%, lasting 3-6 months
• Financial sanctions: sanctioned-country currency -10-30%, commodity supply side hit

4. Global Capital Flow Tracking

Key data sources:

• EPFR fund flows: weekly net inflows into global equity / bond funds
• Northbound flows (Shanghai-Shenzhen-Hong Kong Stock Connect): daily, with net buying > 10 billion RMB in a day as a strong signal
• US Treasury TIC data: monthly, showing changes in foreign holdings of Treasuries
• FX reserve changes: quarterly, indicating central-bank asset allocation direction

Northbound flow signal rules (China A-share practice):

Signal	Condition	Meaning
Strong buy	Net buying for 5 consecutive days and cumulative amount > 20 billion RMB	Foreign investors are building positions trendwise
Weak buy	Single-day net buying > 8 billion RMB	Short-term sentiment is bullish
Warning	Net selling for 5 consecutive days and cumulative amount > 15 billion RMB	Foreign investors are reducing positions trendwise
Neutral	Daily net flow within ±3 billion RMB	No directional signal

5. Dollar Cycle and Emerging Markets

Four-stage dollar cycle model:

Strong-dollar phase (DXY rising) → capital outflows from emerging markets → EM currency depreciation → EM equities and bonds both sell off
Weak-dollar phase (DXY falling) → capital flows back into EM → EM currency appreciation → EM assets outperform developed markets

Practical mapping:

• DXY > 105 and trending up: underweight emerging markets (China A-shares / Hong Kong stocks), overweight USD assets
• DXY < 100 and trending down: overweight emerging markets, underweight USD assets
• DXY in the 100-105 range: allocate selectively based on fundamentals

Analysis Framework

Steps for Building a Macro Dashboard

1. Data collection: rates (US 10Y / China 10Y government bonds), FX (DXY / USD-CNY), commodities (gold / oil / copper), capital flows (northbound / EPFR)
2. Cycle positioning: which stage are we in now: hiking / cutting / pause? Strong-dollar or weak-dollar cycle?
3. Factor scoring: score each macro factor from -2 to +2 (-2 = extremely bearish, +2 = extremely bullish)
4. Asset mapping: macro factor scores → recommended weights for major asset classes

Example Macro Factor Scoring

macro_factors = {
    "fed_policy": +1,      # Hiking pause, dovish tilt
    "cny_pressure": -1,    # RMB depreciation pressure
    "geopolitical": 0,     # Neutral geopolitical risk
    "northbound_flow": +2, # Persistent net northbound buying
    "usd_cycle": -1,       # Stronger USD
}
# Composite score = sum(values) / len(values) = +0.2 → neutral to mildly bullish

Output Format

## Macro Analysis Report

### Cycle Positioning
- Federal Reserve: [late hiking / pause / early cutting]
- Dollar cycle: [strong / range-bound / weak]
- China monetary policy: [easing / neutral / tightening]

### Factor Scores (-2 ~ +2)
| Factor | Score | Basis |
|------|------|------|
| Central bank policy | +1 | Fed paused hiking and the market expects cuts this year |
| FX pressure | -1 | USD/CNY broke above 7.2 and FX settlement turned into deficit |
| Capital flows | +2 | Northbound net buying exceeded 20 billion RMB continuously |

### Asset Allocation Recommendations
- China A-shares: [overweight / neutral / underweight] — rationale
- Hong Kong stocks: [overweight / neutral / underweight] — rationale
- Gold: [overweight / neutral / underweight] — rationale
- US Treasuries: [overweight / neutral / underweight] — rationale

### Risk Warnings
- [specific risk events and potential impacts]

Notes

• Macro analysis provides directional guidance, not precise timing. Leave timing to skills such as technical-basic or volatility
• Central-bank policy judgment should be based on official statements and meeting minutes. Do not over-interpret unofficial messages
• Exchange-rate forecasting has large errors. PPP deviations can persist for years, so use it for direction only, not exact levels
• Northbound flows contain noise (arbitrage / hedging), so persistence matters (at least 3 consecutive days in the same direction)
• Geopolitical shocks are usually short-lived (1-4 weeks) unless they change fundamentals (such as long-term sanctions or trade wars)
• This framework is not investment advice and is for research backtesting only