Macro Intelligence · Weekly · deep read

Macro Regime — 2017-W03

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2017-01 board

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

Standing macro backdropBORROWED

Borrowed from its month (2017-01); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2017-01	2016-12	Change
Core CPI	% MoM	0.22 2017-01-01	0.18 2016-12-01	→ 0.04
Core PCE	% YoY	1.86 2017-01-01	1.77 2016-12-01	→ 0.09
CPI (YoY)	% YoY	2.51 2017-01-01	2.05 2016-12-01	▲ 0.46
FX vs USD	px	not recorded
GDP	% QoQ ann.	2 2017-01-01	—	—
PMI (mfg)	index	54.7 2017-01-03	53.2 2016-12-01	▲ 1.5
PMI (svc)	index	57.2 2017-01-05	57.2 2016-12-05	→ 0
Policy rate	%	0.75 2017-01-31	0.75 2016-12-31	→ 0
2s10s slope	pp	1.26 2017-01-31	1.25 2016-12-30	→ 0.01
Unemployment	%	4.7 2017-01-01	4.7 2016-12-01	→ 0
10Y yield	%	2.45 2017-01-31	2.45 2016-12-30	→ 0
2Y yield	%	1.19 2017-01-31	1.2 2016-12-30	→ -0.01

China

Indicator	Basis	2017-01	2016-12	Change
CPI (YoY)	% YoY	2.1 2017-01-10	2.3 2016-12-09	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	6.8 2017-01-20	—	—
PMI (mfg)	index	51.3 2017-01-01	51.4 2016-12-01	→ -0.1
PMI (svc)	index	54.5 2017-01-01	54.7 2016-12-01	→ -0.2
Policy rate	% (1Y LPR)	4.3 2017-01-26	4.3 2016-12-30	→ 0
2s10s slope	pp	0.57 2017-01-26	0.31 2016-12-31	▲ 0.26
Unemployment	%	not recorded
10Y yield	%	3.35 2017-01-26	3.01 2016-12-31	▲ 0.34
2Y yield	%	2.77 2017-01-26	2.7 2016-12-31	▲ 0.07

Euro area

Indicator	Basis	2017-01	2016-12	Change
CPI (YoY)	% YoY	1.8 2017-01-31	0.6 2016-12-16	▲ 1.2
FX vs USD	px	not recorded
GDP	% YoY	0.5 2017-01-18	-0.1 2016-12-16	▲ 0.6
PMI (mfg)	index	55.1 2017-01-24	54.9 2016-12-15	→ 0.2
PMI (svc)	index	53.6 2017-01-24	53.1 2016-12-15	▲ 0.5
Policy rate	%	0 2017-01-19	0 2016-12-08	→ 0
Unemployment	%	9.6 2017-01-31	9.8 2016-12-01	▼ -0.2
10Y yield	%	1.31 2017-01-01	1.28 2016-12-01	→ 0.02

Japan

Indicator	Basis	2017-01	2016-12	Change
Core CPI	% YoY	0 2017-01-27	0.1 2016-12-27	→ -0.1
CPI (YoY)	% YoY	0.3 2017-01-27	0.5 2016-12-27	▼ -0.2
FX vs USD	px	not recorded
GDP	% YoY	2.45 2017-01-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2017-01-31	-0.1 2016-12-20	→ 0
Unemployment	%	3.1 2017-01-31	3.1 2016-12-27	→ 0
10Y yield	%	0.09 2017-01-01	0.04 2016-12-01	→ 0.04

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 ⚠ stale

goldilocks / reflation

expansion · below target · 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

Japan ⚠ stale

disinflationary stall

unknown · 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

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 53.2 → 54.7 (+1.5)

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)	2.10	2.51	-0.41 ▼	2017-01-18
Core CPI	0.20	0.22	-0.02 ▬	2017-01-18
Core PCE	1.86	1.60	+0.26 ▲	2017-01-01
Policy rate	0.75	0.75	+0.00 ▬	2017-01-22
GDP	2.00	3.50	-1.50 ▼	2017-01-01
PMI (mfg)	54.70	53.20	+1.50 ▲	2017-01-03
PMI (svc)	57.20	57.20	+0.00 ▬	2017-01-05
Unemployment	4.70	4.70	+0.00 ▬	2017-01-06
10Y yield	2.48	2.47	+0.01 ▬	2017-01-20
2Y yield	1.20	1.25	-0.05 ▼	2017-01-20
2s10s slope	1.28	1.22	+0.06 ▲	2017-01-20
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.10	2.30	-0.20 ▼	2017-01-10
Policy rate	4.30	4.30	+0.00 ▬	2017-01-22
GDP	6.80	6.70	+0.10 ▬	2017-01-20
PMI (mfg)	51.30	51.40	-0.10 ▬	2017-01-01
PMI (svc)	54.50	54.70	-0.20 ▬	2017-01-01
Unemployment	n/a
10Y yield	3.25	3.24	+0.01 ▬	2017-01-22
2Y yield	2.72	2.73	-0.01 ▬	2017-01-22
2s10s slope	0.54	0.52	+0.02 ▬	2017-01-22
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.10	1.10	+0.00 ▬	2017-01-18
Policy rate	0.00	0.00	+0.00 ▬	2017-01-19
GDP	0.50	-0.10	+0.60 ▲	2017-01-18
PMI (mfg)	54.90	54.90	+0.00 ▬	2017-01-02
PMI (svc)	53.70	53.10	+0.60 ▲	2017-01-04
Unemployment	9.80	9.80	+0.00 ▬	2017-01-09
10Y yield	1.31	1.28	+0.02 ▬	2017-01-01 ⚠⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.50	0.10	+0.40 ▲	2016-12-27
Core CPI	0.10	0.20	-0.10 ▬	2016-12-27
Policy rate	-0.10	-0.10	+0.00 ▬	2016-12-20
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.10	3.00	+0.10 ▲	2016-12-27
10Y yield	0.09	0.04	+0.04 ▬	2017-01-01 ⚠⚠
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.