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Macro Regime — 2013-W14

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↩ Home Macro index ← 2013-04 board

Standing macro backdropBORROWED

Borrowed from its month (2013-04); the weekly reads the standing object, it does not recompute the aggregate.

United States: stall-speed, at target
China: stall-speed, at target
Euro area: disinflationary stall
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2013-04	2013-03	Change
Core CPI	% MoM	0.02 2013-04-01	0.1 2013-03-01	→ -0.08
Core PCE	% YoY	1.38 2013-04-01	1.48 2013-03-01	→ -0.1
CPI (YoY)	% YoY	1.14 2013-04-01	1.52 2013-03-01	▼ -0.38
FX vs USD	px	not recorded
GDP	% QoQ ann.	1.1 2013-04-01	—	—
PMI (mfg)	index	51.3 2013-04-01	54.2 2013-03-01	▼ -2.9
PMI (svc)	index	54.4 2013-04-03	56 2013-03-05	▼ -1.6
Policy rate	%	0.25 2013-04-30	0.25 2013-03-31	→ 0
2s10s slope	pp	1.48 2013-04-30	1.62 2013-03-28	▼ -0.14
Unemployment	%	7.6 2013-04-01	7.5 2013-03-01	→ 0.1
10Y yield	%	1.7 2013-04-30	1.87 2013-03-28	▼ -0.17
2Y yield	%	0.22 2013-04-30	0.25 2013-03-28	→ -0.03

China

Indicator	Basis	2013-04	2013-03	Change
CPI (YoY)	% YoY	2.1 2013-04-09	3.2 2013-03-09	▼ -1.1
FX vs USD	px	not recorded
GDP	% YoY	7.7 2013-04-15	—	—
PMI (mfg)	index	50.6 2013-04-01	50.9 2013-03-01	→ -0.3
PMI (svc)	index	55.6 2013-04-03	54.5 2013-03-03	▲ 1.1
Policy rate	% (1Y LPR)	not recorded
2s10s slope	pp	0.47 2013-04-28	0.5 2013-03-29	→ -0.03
Unemployment	%	not recorded
10Y yield	%	3.43 2013-04-28	3.54 2013-03-29	▼ -0.11
2Y yield	%	2.96 2013-04-28	3.03 2013-03-29	▼ -0.07

Euro area

Indicator	Basis	2013-04	2013-03	Change
CPI (YoY)	% YoY	1.2 2013-04-30	1.8 2013-03-15	▼ -0.6
FX vs USD	px	not recorded
GDP	% YoY	1.2 2013-04-01	0.4 2013-03-01	▲ 0.8
PMI (mfg)	index	46.5 2013-04-23	46.6 2013-03-21	→ -0.1
PMI (svc)	index	46.6 2013-04-23	46.5 2013-03-21	→ 0.1
Policy rate	%	0.75 2013-04-04	0.75 2013-03-07	→ 0
Unemployment	%	12.1 2013-04-30	11.9 2013-03-01	▲ 0.2
10Y yield	%	2.86 2013-04-01	3.03 2013-03-01	▼ -0.17

Japan

Indicator	Basis	2013-04	2013-03	Change
Core CPI	% YoY	-0.8 2013-04-25	-0.9 2013-03-28	→ 0.1
CPI (YoY)	% YoY	-0.9 2013-04-25	-0.7 2013-03-28	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	3.64 2013-04-01	—	—
PMI (mfg)		not recorded
Policy rate	%	0.1 2013-04-26	0.1 2013-03-07	→ 0
Unemployment	%	4.1 2013-04-29	4.2 2013-03-01	→ -0.1
10Y yield	%	0.59 2013-04-01	0.49 2013-03-01	▲ 0.1

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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

China

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

Euro area

disinflationary stall

contraction · at 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

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

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

No active mechanism this week — the standing read above carries the bloc.

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.
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).
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.

Euro area

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.

Japan

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: -0.7 → -0.9 (-0.2)

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)	1.14	2.00	-0.86 ▼	2013-04-01
Core CPI	0.02	0.20	-0.18 ▼	2013-04-01
Core PCE	1.38	1.48	-0.10 ▼	2013-04-01
Policy rate	0.25	0.25	+0.00 ▬	2013-04-07
GDP	1.10	0.40	+0.70 ▲	2013-04-01
PMI (mfg)	51.30	54.20	-2.90 ▼	2013-04-01
PMI (svc)	54.40	56.00	-1.60 ▼	2013-04-03
Unemployment	7.60	7.60	+0.00 ▬	2013-04-05
10Y yield	1.72	1.78	-0.06 ▼	2013-04-05
2Y yield	0.24	0.22	+0.02 ▬	2013-04-05
2s10s slope	1.48	1.56	-0.08 ▼	2013-04-05
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.20	2.00	+1.20 ▲	2013-03-09
Policy rate	n/a
GDP	7.90	7.40	+0.50 ▲	2013-01-18
PMI (mfg)	50.60	50.90	-0.30 ▬	2013-04-01
PMI (svc)	55.60	54.50	+1.10 ▲	2013-04-03
Unemployment	n/a
10Y yield	3.49	3.50	-0.01 ▬	2013-04-07
2Y yield	2.96	2.97	-0.01 ▬	2013-04-07
2s10s slope	0.53	0.53	-0.00 ▬	2013-04-07
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.70	1.80	-0.10 ▼	2013-04-03
Policy rate	0.75	0.75	+0.00 ▬	2013-04-04
GDP	1.20	0.40	+0.80 ▲	2013-04-01
PMI (mfg)	46.80	46.60	+0.20 ▬	2013-04-02
PMI (svc)	46.40	46.50	-0.10 ▬	2013-04-04
Unemployment	12.00	11.90	+0.10 ▬	2013-04-02
10Y yield	2.86	3.03	-0.17 ▼	2013-04-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.70	-0.30	-0.40 ▼	2013-03-28
Core CPI	-0.90	-0.70	-0.20 ▼	2013-03-28
Policy rate	0.10	0.10	+0.00 ▬	2013-04-04
GDP	n/a
PMI (mfg)	n/a
Unemployment	4.30	4.20	+0.10 ▬	2013-04-01
10Y yield	0.59	0.49	+0.10 ▲	2013-04-01
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.