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Macro Regime — 2015-W05

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Standing macro backdropBORROWED

Borrowed from its month (2015-02); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2015-02	2015-01	Change
Core CPI	% MoM	0.15 2015-02-01	0.09 2015-01-01	→ 0.06
Core PCE	% YoY	1.28 2015-02-01	1.21 2015-01-01	→ 0.07
CPI (YoY)	% YoY	-0.09 2015-02-01	-0.23 2015-01-01	▲ 0.14
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	53.5 2015-02-02	55.5 2015-01-02	▼ -2
PMI (svc)	index	56.7 2015-02-04	56.2 2015-01-06	▲ 0.5
Policy rate	%	0.25 2015-02-28	0.25 2015-01-31	→ 0
2s10s slope	pp	1.37 2015-02-27	1.21 2015-01-30	▲ 0.16
Unemployment	%	5.5 2015-02-01	5.7 2015-01-01	▼ -0.2
10Y yield	%	2 2015-02-27	1.68 2015-01-30	▲ 0.32
2Y yield	%	0.63 2015-02-27	0.47 2015-01-30	▲ 0.16

China

Indicator	Basis	2015-02	2015-01	Change
CPI (YoY)	% YoY	0.8 2015-02-10	1.5 2015-01-09	▼ -0.7
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	49.9 2015-02-01	49.8 2015-01-01	→ 0.1
PMI (svc)	index	53.7 2015-02-01	54.1 2015-01-01	▼ -0.4
Policy rate	% (1Y LPR)	5.51 2015-02-28	5.51 2015-01-30	→ 0
2s10s slope	pp	0.27 2015-02-28	0.35 2015-01-30	▼ -0.07
Unemployment	%	not recorded
10Y yield	%	3.36 2015-02-28	3.5 2015-01-30	▼ -0.14
2Y yield	%	3.09 2015-02-28	3.16 2015-01-30	▼ -0.07

Euro area

Indicator	Basis	2015-02	2015-01	Change
CPI (YoY)	% YoY	-0.6 2015-02-24	-0.6 2015-01-30	→ 0
FX vs USD	px	not recorded
GDP	% YoY	-1.6 2015-02-24	-0.1 2015-01-16	▼ -1.5
PMI (mfg)	index	51.1 2015-02-20	51 2015-01-23	→ 0.1
PMI (svc)	index	53.9 2015-02-20	52.3 2015-01-23	▲ 1.6
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	1.21 2015-02-01	1.27 2015-01-01	▼ -0.06

Japan

Indicator	Basis	2015-02	2015-01	Change
Core CPI	% YoY	2.1 2015-02-25	2.1 2015-01-25	→ 0
CPI (YoY)	% YoY	2.4 2015-02-25	2.4 2015-01-25	→ 0
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	0.1 2015-02-18	0.1 2015-01-21	→ 0
Unemployment	%	not recorded
10Y yield	%	0.33 2015-02-01	0.28 2015-01-01	▲ 0.06

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

goldilocks / reflation

expansion · deflation risk · on hold

Improving growth with inflation at/below target — the benign mix. Cyclicals, small-caps and risk assets broadly tend to lead; long bonds lag as growth firms.

○ 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.

○ no change

Euro area

deflation watch

stall · 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

Japan

stall-speed, at target

unknown · 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

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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 50.6 → 51 (+0.4)

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).

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)	-0.09	0.80	-0.89 ▼	2015-02-01
Core CPI	0.15	0.00	+0.15 ▲	2015-02-01
Core PCE	1.28	1.21	+0.07 ▬	2015-02-01
Policy rate	0.25	0.25	+0.00 ▬	2015-02-01
GDP	2.60	3.60	-1.00 ▼	2015-01-30
PMI (mfg)	55.50	58.70	-3.20 ▼	2015-01-02
PMI (svc)	56.20	59.30	-3.10 ▼	2015-01-06
Unemployment	5.50	5.60	-0.10 ▬	2015-02-01
10Y yield	1.68	1.77	-0.09 ▼	2015-01-30
2Y yield	0.47	0.51	-0.04 ▬	2015-01-30
2s10s slope	1.21	1.26	-0.05 ▼	2015-01-30
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.50	1.40	+0.10 ▲	2015-01-09
Policy rate	5.51	5.51	+0.00 ▬	2015-01-30
GDP	7.30	7.30	+0.00 ▬	2015-01-20
PMI (mfg)	49.90	49.80	+0.10 ▬	2015-02-01
PMI (svc)	53.70	54.10	-0.40 ▼	2015-02-01
Unemployment	n/a
10Y yield	3.50	3.50	+0.01 ▬	2015-01-30
2Y yield	3.16	3.14	+0.01 ▬	2015-01-30
2s10s slope	0.35	0.36	-0.01 ▬	2015-01-30
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.60	-0.20	-0.40 ▼	2015-01-30
Policy rate	0.05	0.05	+0.00 ▬	2015-01-22
GDP	-0.10	-0.20	+0.10 ▬	2015-01-16
PMI (mfg)	51.00	50.60	+0.40 ▲	2015-01-23
PMI (svc)	52.30	51.60	+0.70 ▲	2015-01-23
Unemployment	11.40	11.50	-0.10 ▬	2015-01-30
10Y yield	1.21	1.27	-0.06 ▼	2015-02-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.40	+0.00 ▬	2015-01-25
Core CPI	2.10	2.10	+0.00 ▬	2015-01-25
Policy rate	0.10	0.10	+0.00 ▬	2015-01-21
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.40	3.50	-0.10 ▼	2015-01-29
10Y yield	0.33	0.28	+0.06 ▲	2015-02-01
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.