Macro Intelligence · Weekly · deep read

Macro Regime — 2017-W23

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

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↩ Home Macro index ← 2017-06 board

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

Standing macro backdropBORROWED

Borrowed from its month (2017-06); 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	2017-06	2017-05	Change
Core CPI	% MoM	0.13 2017-06-01	0.08 2017-05-01	→ 0.05
Core PCE	% YoY	1.58 2017-06-01	1.55 2017-05-01	→ 0.03
CPI (YoY)	% YoY	1.64 2017-06-01	1.86 2017-05-01	▼ -0.22
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	54.9 2017-06-01	54.8 2017-05-01	→ 0.1
PMI (svc)	index	56.9 2017-06-05	57.5 2017-05-03	▼ -0.6
Policy rate	%	1.25 2017-06-30	1 2017-05-31	▲ 0.25
2s10s slope	pp	0.93 2017-06-30	0.93 2017-05-31	→ 0
Unemployment	%	4.3 2017-06-01	4.4 2017-05-01	→ -0.1
10Y yield	%	2.31 2017-06-30	2.21 2017-05-31	▲ 0.1
2Y yield	%	1.38 2017-06-30	1.28 2017-05-31	▲ 0.1

China

Indicator	Basis	2017-06	2017-05	Change
CPI (YoY)	% YoY	1.5 2017-06-09	1.2 2017-05-10	▲ 0.3
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	51.7 2017-06-01	51.2 2017-05-01	▲ 0.5
PMI (svc)	index	54.9 2017-06-30	54.5 2017-05-31	▲ 0.4
Policy rate	% (1Y LPR)	4.3 2017-06-30	4.3 2017-05-31	→ 0
2s10s slope	pp	0.07 2017-06-30	0.05 2017-05-31	→ 0.02
Unemployment	%	not recorded
10Y yield	%	3.57 2017-06-30	3.61 2017-05-31	→ -0.04
2Y yield	%	3.49 2017-06-30	3.56 2017-05-31	▼ -0.07

Euro area

Indicator	Basis	2017-06	2017-05	Change
CPI (YoY)	% YoY	1.3 2017-06-30	1.4 2017-05-31	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	-0.1 2017-06-16	0.4 2017-05-17	▼ -0.5
PMI (mfg)	index	57.3 2017-06-23	57 2017-05-23	→ 0.3
PMI (svc)	index	54.7 2017-06-23	56.2 2017-05-23	▼ -1.5
Policy rate	%	0 2017-06-08	—	—
Unemployment	%	not recorded
10Y yield	%	1.07 2017-06-01	1.17 2017-05-01	▼ -0.1

Japan

Indicator	Basis	2017-06	2017-05	Change
Core CPI	% YoY	-0.2 2017-06-30	-0.3 2017-05-26	→ 0.1
CPI (YoY)	% YoY	0.4 2017-06-30	0.4 2017-05-26	→ 0
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2017-06-16	—	—
Unemployment	%	3.1 2017-06-30	2.8 2017-05-30	▲ 0.3
10Y yield	%	0.07 2017-06-01	0.04 2017-05-01	→ 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.

○ 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.

● 1 active

Euro area ⚠ stale

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.

○ no change

Japan ⚠ stale

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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.2 → 51.7 (+0.5)

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

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

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)	1.64	2.20	-0.56 ▼	2017-06-01
Core CPI	0.13	0.10	+0.03 ▬	2017-06-01
Core PCE	1.58	1.50	+0.08 ▬	2017-06-01
Policy rate	1.00	1.00	+0.00 ▬	2017-06-11
GDP	1.20	0.70	+0.50 ▲	2017-05-26
PMI (mfg)	54.90	54.80	+0.10 ▬	2017-06-01
PMI (svc)	56.90	57.50	-0.60 ▼	2017-06-05
Unemployment	4.30	4.30	+0.00 ▬	2017-06-02
10Y yield	2.21	2.19	+0.02 ▬	2017-06-09
2Y yield	1.35	1.33	+0.02 ▬	2017-06-09
2s10s slope	0.86	0.86	+0.00 ▬	2017-06-09
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.50	1.20	+0.30 ▲	2017-06-09
Policy rate	4.30	4.30	+0.00 ▬	2017-06-09
GDP	6.90	6.80	+0.10 ▬	2017-04-17
PMI (mfg)	51.70	51.20	+0.50 ▲	2017-06-01
PMI (svc)	54.50	54.00	+0.50 ▲	2017-05-31
Unemployment	n/a
10Y yield	3.63	3.65	-0.02 ▬	2017-06-09
2Y yield	3.62	3.64	-0.02 ▬	2017-06-09
2s10s slope	0.01	0.01	+0.00 ▬	2017-06-09
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.40	1.90	-0.50 ▼	2017-05-31
Policy rate	0.00	0.00	+0.00 ▬	2017-06-08
GDP	0.40	0.80	-0.40 ▼	2017-05-17
PMI (mfg)	57.00	57.00	+0.00 ▬	2017-06-01
PMI (svc)	56.30	56.20	+0.10 ▬	2017-06-05
Unemployment	9.30	9.50	-0.20 ▼	2017-05-31
10Y yield	1.07	1.17	-0.10 ▼	2017-06-01 ⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.40	0.20	+0.20 ▲	2017-05-26
Core CPI	-0.30	-0.30	+0.00 ▬	2017-05-26
Policy rate	-0.10	-0.10	+0.00 ▬	2017-04-27
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.80	2.80	+0.00 ▬	2017-05-30
10Y yield	0.07	0.04	+0.04 ▬	2017-06-01 ⚠
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.