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Macro Regime — 2014-W27

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↩ Home Macro index ← 2014-07 board

Standing macro backdropBORROWED

Borrowed from its month (2014-07); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2014-07	2014-06	Change
Core CPI	% MoM	0.15 2014-07-01	0.13 2014-06-01	→ 0.02
Core PCE	% YoY	1.61 2014-07-01	1.56 2014-06-01	→ 0.05
CPI (YoY)	% YoY	1.97 2014-07-01	2.06 2014-06-01	→ -0.09
FX vs USD	px	not recorded
GDP	% QoQ ann.	5 2014-07-01	—	—
PMI (mfg)	index	55.3 2014-07-01	55.4 2014-06-02	→ -0.1
PMI (svc)	index	56 2014-07-03	56.3 2014-06-04	→ -0.3
Policy rate	%	0.25 2014-07-31	0.25 2014-06-30	→ 0
2s10s slope	pp	2.05 2014-07-31	2.06 2014-06-30	→ -0.01
Unemployment	%	6.2 2014-07-01	6.1 2014-06-01	→ 0.1
10Y yield	%	2.58 2014-07-31	2.53 2014-06-30	→ 0.05
2Y yield	%	0.53 2014-07-31	0.47 2014-06-30	▲ 0.06

China

Indicator	Basis	2014-07	2014-06	Change
CPI (YoY)	% YoY	2.3 2014-07-09	2.5 2014-06-10	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	7.5 2014-07-16	—	—
PMI (mfg)	index	51.7 2014-07-01	51 2014-06-01	▲ 0.7
PMI (svc)	index	55 2014-07-03	55.5 2014-06-03	▼ -0.5
Policy rate	% (1Y LPR)	5.76 2014-07-31	5.76 2014-06-30	→ 0
2s10s slope	pp	0.39 2014-07-31	0.46 2014-06-30	▼ -0.07
Unemployment	%	not recorded
10Y yield	%	4.27 2014-07-31	4.06 2014-06-30	▲ 0.2
2Y yield	%	3.87 2014-07-31	3.6 2014-06-30	▲ 0.27

Euro area

Indicator	Basis	2014-07	2014-06	Change
CPI (YoY)	% YoY	0.4 2014-07-31	0.5 2014-06-30	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	0.1 2014-07-17	-0.1 2014-06-16	→ 0.2
PMI (mfg)	index	51.9 2014-07-24	51.9 2014-06-23	→ 0
PMI (svc)	index	54.4 2014-07-24	52.8 2014-06-23	▲ 1.6
Policy rate	%	0.15 2014-07-03	0.15 2014-06-05	→ 0
Unemployment	%	11.5 2014-07-31	11.7 2014-06-03	▼ -0.2
10Y yield	%	2.16 2014-07-01	2.28 2014-06-01	▼ -0.12

Japan

Indicator	Basis	2014-07	2014-06	Change
Core CPI	% YoY	2.3 2014-07-26	2.2 2014-06-25	→ 0.1
CPI (YoY)	% YoY	3.6 2014-07-26	3.7 2014-06-25	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	3.09 2014-07-01	—	—
PMI (mfg)		not recorded
Policy rate	%	0.1 2014-07-15	0.1 2014-06-13	→ 0
Unemployment	%	3.7 2014-07-30	3.6 2014-06-29	→ 0.1
10Y yield	%	0.53 2014-07-01	0.54 2014-06-01	→ -0.01

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.

○ no change

China

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.

● 1 active

Euro area

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

Japan

overheating / late-cycle

unknown · 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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51 → 51.7 (+0.7)

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

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

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

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)	1.97	2.10	-0.13 ▼	2014-07-01
Core CPI	0.15	0.30	-0.15 ▼	2014-07-01
Core PCE	1.61	1.56	+0.05 ▬	2014-07-01
Policy rate	0.25	0.25	+0.00 ▬	2014-07-06
GDP	5.00	-2.90	+7.90 ▲	2014-07-01
PMI (mfg)	55.30	55.40	-0.10 ▬	2014-07-01
PMI (svc)	56.00	56.30	-0.30 ▬	2014-07-03
Unemployment	6.10	6.20	-0.10 ▼	2014-07-03
10Y yield	2.65	2.64	+0.01 ▬	2014-07-03
2Y yield	0.52	0.49	+0.03 ▬	2014-07-03
2s10s slope	2.13	2.15	-0.02 ▬	2014-07-03
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	1.80	+0.70 ▲	2014-06-10
Policy rate	5.76	5.76	+0.00 ▬	2014-07-04
GDP	7.40	7.70	-0.30 ▼	2014-04-16
PMI (mfg)	51.70	51.00	+0.70 ▲	2014-07-01
PMI (svc)	55.00	55.50	-0.50 ▼	2014-07-03
Unemployment	n/a
10Y yield	4.17	4.15	+0.02 ▬	2014-07-04
2Y yield	3.68	3.68	+0.00 ▬	2014-07-04
2s10s slope	0.49	0.47	+0.02 ▬	2014-07-04
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.50	0.50	+0.00 ▬	2014-06-30
Policy rate	0.15	0.15	+0.00 ▬	2014-07-03
GDP	-0.10	0.20	-0.30 ▼	2014-06-16
PMI (mfg)	51.80	51.90	-0.10 ▬	2014-07-01
PMI (svc)	52.80	52.80	+0.00 ▬	2014-07-03
Unemployment	11.60	11.70	-0.10 ▬	2014-07-01
10Y yield	2.16	2.28	-0.12 ▼	2014-07-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.70	3.40	+0.30 ▲	2014-06-25
Core CPI	2.20	2.30	-0.10 ▬	2014-06-25
Policy rate	0.10	0.10	+0.00 ▬	2014-06-13
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.60	3.60	+0.00 ▬	2014-06-29
10Y yield	0.53	0.54	-0.01 ▬	2014-07-01
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.