Macro Intelligence · Weekly · deep read

Macro Regime — 2017-W05

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↩ Home Macro index ← 2017-02 board

Standing macro backdropBORROWED

Borrowed from its month (2017-02); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2017-02	2017-01	Change
Core CPI	% MoM	0.21 2017-02-01	0.22 2017-01-01	→ -0.01
Core PCE	% YoY	1.87 2017-02-01	1.86 2017-01-01	→ 0.01
CPI (YoY)	% YoY	2.81 2017-02-01	2.51 2017-01-01	▲ 0.3
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	56 2017-02-01	54.7 2017-01-03	▲ 1.3
PMI (svc)	index	56.5 2017-02-03	57.2 2017-01-05	▼ -0.7
Policy rate	%	0.75 2017-02-28	0.75 2017-01-31	→ 0
2s10s slope	pp	1.14 2017-02-28	1.26 2017-01-31	▼ -0.12
Unemployment	%	4.6 2017-02-01	4.7 2017-01-01	→ -0.1
10Y yield	%	2.36 2017-02-28	2.45 2017-01-31	▼ -0.09
2Y yield	%	1.22 2017-02-28	1.19 2017-01-31	→ 0.03

China

Indicator	Basis	2017-02	2017-01	Change
CPI (YoY)	% YoY	2.5 2017-02-14	2.1 2017-01-10	▲ 0.4
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	51.6 2017-02-01	51.3 2017-01-01	→ 0.3
PMI (svc)	index	54.6 2017-02-01	54.5 2017-01-01	→ 0.1
Policy rate	% (1Y LPR)	4.3 2017-02-28	4.3 2017-01-26	→ 0
2s10s slope	pp	0.46 2017-02-28	0.57 2017-01-26	▼ -0.11
Unemployment	%	not recorded
10Y yield	%	3.29 2017-02-28	3.35 2017-01-26	▼ -0.05
2Y yield	%	2.83 2017-02-28	2.77 2017-01-26	▲ 0.06

Euro area

Indicator	Basis	2017-02	2017-01	Change
CPI (YoY)	% YoY	1.8 2017-02-22	1.8 2017-01-31	→ 0
FX vs USD	px	not recorded
GDP	% YoY	-0.8 2017-02-22	0.5 2017-01-18	▼ -1.3
PMI (mfg)	index	55.5 2017-02-21	55.1 2017-01-24	▲ 0.4
PMI (svc)	index	55.6 2017-02-21	53.6 2017-01-24	▲ 2
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	1.44 2017-02-01	1.31 2017-01-01	▲ 0.13

Japan

Indicator	Basis	2017-02	2017-01	Change
Core CPI	% YoY	not recorded
CPI (YoY)	% YoY	not recorded
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.05 2017-02-01	0.09 2017-01-01	→ -0.04

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

overheating / late-cycle

expansion · 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.

● 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.

● 1 active

Euro area

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

Japan

deflation watch

unknown · 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

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 54.7 → 56 (+1.3)

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.3 → 51.6 (+0.3)

Manufacturing PMI 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.
Cyclicals, small-caps, EM and commodities lead; defensives 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

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.30739 → 1.43714 (+0.129754)

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount ratediscount 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. for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yieldreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

Caveat: Granularity is daily, so a single-session jump can be noise; a sustained multi-session move is the real signal. Distinguish a growth-driven rise (risk-on) from a supply/term-premium rise (risk-off).

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 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)	2.81	2.10	+0.71 ▲	2017-02-01
Core CPI	0.21	0.20	+0.01 ▬	2017-02-01
Core PCE	1.87	1.70	+0.17 ▲	2017-02-01
Policy rate	0.75	0.75	+0.00 ▬	2017-02-05
GDP	1.90	2.00	-0.10 ▬	2017-01-27
PMI (mfg)	56.00	54.70	+1.30 ▲	2017-02-01
PMI (svc)	56.50	57.20	-0.70 ▼	2017-02-03
Unemployment	4.80	4.60	+0.20 ▲	2017-02-03
10Y yield	2.49	2.48	+0.01 ▬	2017-02-03
2Y yield	1.21	1.21	+0.00 ▬	2017-02-03
2s10s slope	1.28	1.27	+0.01 ▬	2017-02-03
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 ▬	2017-02-04
GDP	6.80	6.70	+0.10 ▬	2017-01-20
PMI (mfg)	51.60	51.30	+0.30 ▲	2017-02-01
PMI (svc)	54.60	54.50	+0.10 ▬	2017-02-01
Unemployment	n/a
10Y yield	3.41	3.42	-0.01 ▬	2017-02-04
2Y yield	2.85	2.82	+0.03 ▬	2017-02-04
2s10s slope	0.56	0.60	-0.04 ▬	2017-02-04
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.80	1.10	+0.70 ▲	2017-01-31
Policy rate	0.00	0.00	+0.00 ▬	2017-01-19
GDP	0.50	-0.10	+0.60 ▲	2017-01-18
PMI (mfg)	55.20	55.10	+0.10 ▬	2017-02-01
PMI (svc)	53.70	53.60	+0.10 ▬	2017-02-03
Unemployment	9.60	9.80	-0.20 ▼	2017-01-31
10Y yield	1.44	1.31	+0.13 ▲	2017-02-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.30	0.50	-0.20 ▼	2017-01-27
Core CPI	0.00	0.10	-0.10 ▬	2017-01-27
Policy rate	-0.10	-0.10	+0.00 ▬	2017-01-31
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.10	3.10	+0.00 ▬	2017-01-31
10Y yield	0.05	0.09	-0.04 ▬	2017-02-01
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.