Macro Intelligence · Weekly · deep read

Macro Regime — 2016-W14

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US · China · EU · Japan · mechanism-first, taught

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↩ Home Macro index ← 2016-04 board

⚠ 0 very-stale + 2 stale series across the four blocs — flagged inline.

Standing macro backdropBORROWED

Borrowed from its month (2016-04); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2016-04	2016-03	Change
Core CPI	% MoM	0.26 2016-04-01	0.16 2016-03-01	→ 0.1
Core PCE	% YoY	1.52 2016-04-01	1.46 2016-03-01	→ 0.06
CPI (YoY)	% YoY	1.17 2016-04-01	0.89 2016-03-01	▲ 0.28
FX vs USD	px	not recorded
GDP	% QoQ ann.	1.3 2016-04-01	—	—
PMI (mfg)	index	51.8 2016-04-01	49.5 2016-03-01	▲ 2.3
PMI (svc)	index	54.5 2016-04-05	53.4 2016-03-03	▲ 1.1
Policy rate	%	0.5 2016-04-30	0.5 2016-03-31	→ 0
2s10s slope	pp	1.06 2016-04-29	1.05 2016-03-31	→ 0.01
Unemployment	%	5.1 2016-04-01	5 2016-03-01	→ 0.1
10Y yield	%	1.83 2016-04-29	1.78 2016-03-31	→ 0.05
2Y yield	%	0.77 2016-04-29	0.73 2016-03-31	→ 0.04

China

Indicator	Basis	2016-04	2016-03	Change
CPI (YoY)	% YoY	2.3 2016-04-11	2.3 2016-03-10	→ 0
FX vs USD	px	not recorded
GDP	% YoY	6.7 2016-04-15	—	—
PMI (mfg)	index	50.1 2016-04-01	50.2 2016-03-01	→ -0.1
PMI (svc)	index	53.8 2016-04-01	52.7 2016-03-01	▲ 1.1
Policy rate	% (1Y LPR)	4.3 2016-04-29	4.3 2016-03-31	→ 0
2s10s slope	pp	0.45 2016-04-29	0.66 2016-03-31	▼ -0.2
Unemployment	%	not recorded
10Y yield	%	2.89 2016-04-29	2.84 2016-03-31	→ 0.05
2Y yield	%	2.44 2016-04-29	2.18 2016-03-31	▲ 0.25

Euro area

Indicator	Basis	2016-04	2016-03	Change
CPI (YoY)	% YoY	-0.2 2016-04-29	-0.1 2016-03-31	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	1.2 2016-04-14	0.2 2016-03-17	▲ 1
PMI (mfg)	index	51.5 2016-04-22	51.4 2016-03-22	→ 0.1
PMI (svc)	index	53.2 2016-04-22	54 2016-03-22	▼ -0.8
Policy rate	%	0 2016-04-21	0 2016-03-10	→ 0
Unemployment	%	10.2 2016-04-29	10.3 2016-03-01	→ -0.1
10Y yield	%	0.96 2016-04-01	0.93 2016-03-01	→ 0.03

Japan

Indicator	Basis	2016-04	2016-03	Change
Core CPI	% YoY	0.6 2016-04-28	0.6 2016-03-25	→ 0
CPI (YoY)	% YoY	0 2016-04-28	0.2 2016-03-25	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	3.36 2016-04-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2016-04-28	-0.1 2016-03-15	→ 0
Unemployment	%	3.2 2016-04-28	3.3 2016-03-29	→ -0.1
10Y yield	%	-0.09 2016-04-01	-0.05 2016-03-01	→ -0.04

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.

● 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 ⚠ stale

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.

○ no change

Japan ⚠ stale

deflation watch

unknown · deflation risk · on hold

○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 49.5 → 51.8 (+2.3)

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

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)	1.17	1.00	+0.17 ▲	2016-04-01
Core CPI	0.26	0.30	-0.04 ▬	2016-04-01
Core PCE	1.52	1.70	-0.18 ▼	2016-04-01
Policy rate	0.50	0.50	+0.00 ▬	2016-04-10
GDP	1.30	1.40	-0.10 ▬	2016-04-01
PMI (mfg)	51.80	49.50	+2.30 ▲	2016-04-01
PMI (svc)	54.50	53.40	+1.10 ▲	2016-04-05
Unemployment	5.10	4.90	+0.20 ▲	2016-04-01
10Y yield	1.72	1.70	+0.02 ▬	2016-04-08
2Y yield	0.70	0.70	+0.00 ▬	2016-04-08
2s10s slope	1.02	1.00	+0.02 ▬	2016-04-08
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.30	1.80	+0.50 ▲	2016-03-10
Policy rate	4.30	4.30	+0.00 ▬	2016-04-08
GDP	6.80	6.90	-0.10 ▬	2016-01-19
PMI (mfg)	50.10	50.20	-0.10 ▬	2016-04-01
PMI (svc)	53.80	52.70	+1.10 ▲	2016-04-01
Unemployment	n/a
10Y yield	2.92	2.90	+0.01 ▬	2016-04-08
2Y yield	2.26	2.24	+0.02 ▬	2016-04-08
2s10s slope	0.65	0.66	-0.01 ▬	2016-04-08
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.10	-0.20	+0.10 ▬	2016-03-31
Policy rate	0.00	0.05	-0.05 ▬	2016-03-10
GDP	0.20	-1.40	+1.60 ▲	2016-03-17
PMI (mfg)	51.60	51.40	+0.20 ▬	2016-04-01
PMI (svc)	53.10	54.00	-0.90 ▼	2016-04-05
Unemployment	10.30	10.30	+0.00 ▬	2016-04-04
10Y yield	0.96	0.93	+0.03 ▬	2016-04-01 ⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.20	-0.10	+0.30 ▲	2016-03-25
Core CPI	0.60	0.60	+0.00 ▬	2016-03-25
Policy rate	-0.10	-0.10	+0.00 ▬	2016-03-15
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.30	3.20	+0.10 ▬	2016-03-29
10Y yield	-0.09	-0.05	-0.04 ▬	2016-04-01 ⚠
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.