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Macro Regime — 2014-W36

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Standing macro backdropBORROWED

Borrowed from its month (2014-09); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2014-09	2014-08	Change
Core CPI	% MoM	0.16 2014-09-01	0.09 2014-08-01	→ 0.07
Core PCE	% YoY	1.55 2014-09-01	1.54 2014-08-01	→ 0.01
CPI (YoY)	% YoY	1.68 2014-09-01	1.72 2014-08-01	→ -0.04
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	59 2014-09-02	57.1 2014-08-01	▲ 1.9
PMI (svc)	index	59.6 2014-09-04	58.7 2014-08-05	▲ 0.9
Policy rate	%	0.25 2014-09-30	0.25 2014-08-31	→ 0
2s10s slope	pp	1.94 2014-09-30	1.87 2014-08-29	▲ 0.07
Unemployment	%	5.9 2014-09-01	6.1 2014-08-01	▼ -0.2
10Y yield	%	2.52 2014-09-30	2.35 2014-08-29	▲ 0.17
2Y yield	%	0.58 2014-09-30	0.48 2014-08-29	▲ 0.1

China

Indicator	Basis	2014-09	2014-08	Change
CPI (YoY)	% YoY	2 2014-09-11	2.3 2014-08-09	▼ -0.3
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	51.1 2014-09-01	51.1 2014-08-01	→ 0
PMI (svc)	index	54.4 2014-09-03	54.2 2014-08-03	→ 0.2
Policy rate	% (1Y LPR)	5.76 2014-09-30	5.76 2014-08-29	→ 0
2s10s slope	pp	0.17 2014-09-30	0.33 2014-08-29	▼ -0.16
Unemployment	%	not recorded
10Y yield	%	3.98 2014-09-30	4.24 2014-08-29	▼ -0.25
2Y yield	%	3.81 2014-09-30	3.9 2014-08-29	▼ -0.09

Euro area

Indicator	Basis	2014-09	2014-08	Change
CPI (YoY)	% YoY	0.3 2014-09-30	0.3 2014-08-29	→ 0
FX vs USD	px	not recorded
GDP	% YoY	0.1 2014-09-17	-0.7 2014-08-14	▲ 0.8
PMI (mfg)	index	50.5 2014-09-23	50.8 2014-08-21	→ -0.3
PMI (svc)	index	52.8 2014-09-23	53.5 2014-08-21	▼ -0.7
Policy rate	%	0.05 2014-09-04	0.15 2014-08-07	▼ -0.1
Unemployment	%	11.5 2014-09-30	11.5 2014-08-29	→ 0
10Y yield	%	1.85 2014-09-01	1.99 2014-08-01	▼ -0.14

Japan

Indicator	Basis	2014-09	2014-08	Change
Core CPI	% YoY	2.3 2014-09-25	2.3 2014-08-25	→ 0
CPI (YoY)	% YoY	3.3 2014-09-25	3.4 2014-08-25	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2014-09-04	0.1 2014-08-08	→ 0
Unemployment	%	3.5 2014-09-29	3.7 2014-08-29	▼ -0.2
10Y yield	%	0.5 2014-09-01	0.49 2014-08-01	→ 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.

● 1 active

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.

○ no change

Euro area

deflation watch

stall · deflation risk · easing

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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 57.1 → 59 (+1.9)

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

M3Monetary easing (rate cut)

Trigger: policy_rate: 0.15 → 0.05 (-0.1)

The central bank cuts its 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..
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount ratesdiscount 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. 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).

What would change the read

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.
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

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)	1.68	2.00	-0.32 ▼	2014-09-01
Core CPI	0.16	0.10	+0.06 ▬	2014-09-01
Core PCE	1.55	1.50	+0.05 ▬	2014-09-01
Policy rate	0.25	0.25	+0.00 ▬	2014-09-07
GDP	4.20	4.00	+0.20 ▲	2014-08-28
PMI (mfg)	59.00	57.10	+1.90 ▲	2014-09-02
PMI (svc)	59.60	58.70	+0.90 ▲	2014-09-04
Unemployment	6.10	5.90	+0.20 ▲	2014-09-05
10Y yield	2.46	2.45	+0.01 ▬	2014-09-05
2Y yield	0.52	0.54	-0.02 ▬	2014-09-05
2s10s slope	1.94	1.91	+0.03 ▬	2014-09-05
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.30	2.30	+0.00 ▬	2014-08-09
Policy rate	5.76	5.76	+0.00 ▬	2014-09-05
GDP	7.50	7.40	+0.10 ▬	2014-07-16
PMI (mfg)	51.10	51.10	+0.00 ▬	2014-09-01
PMI (svc)	54.40	54.20	+0.20 ▬	2014-09-03
Unemployment	n/a
10Y yield	4.29	4.28	+0.01 ▬	2014-09-05
2Y yield	3.91	3.90	+0.01 ▬	2014-09-05
2s10s slope	0.38	0.38	+0.01 ▬	2014-09-05
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.30	0.40	-0.10 ▼	2014-08-29
Policy rate	0.05	0.15	-0.10 ▼	2014-09-04
GDP	-0.70	0.10	-0.80 ▼	2014-08-14
PMI (mfg)	50.70	50.80	-0.10 ▬	2014-09-01
PMI (svc)	53.10	53.50	-0.40 ▼	2014-09-03
Unemployment	11.50	11.50	+0.00 ▬	2014-08-29
10Y yield	1.85	1.99	-0.14 ▼	2014-09-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.40	3.60	-0.20 ▼	2014-08-25
Core CPI	2.30	2.30	+0.00 ▬	2014-08-25
Policy rate	0.10	0.10	+0.00 ▬	2014-09-04
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.70	3.70	+0.00 ▬	2014-08-29
10Y yield	0.50	0.49	+0.01 ▬	2014-09-01
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.