Macro Intelligence · Weekly · deep read

Macro Regime — 2017-W37

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2017-09 board

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

Standing macro backdropBORROWED

Borrowed from its month (2017-09); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2017-09	2017-08	Change
Core CPI	% MoM	0.11 2017-09-01	0.22 2017-08-01	▼ -0.11
Core PCE	% YoY	1.42 2017-09-01	1.43 2017-08-01	→ -0.01
CPI (YoY)	% YoY	2.18 2017-09-01	1.93 2017-08-01	▲ 0.25
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	58.8 2017-09-01	56.3 2017-08-01	▲ 2.5
PMI (svc)	index	55.3 2017-09-06	53.9 2017-08-03	▲ 1.4
Policy rate	%	1.25 2017-09-30	1.25 2017-08-31	→ 0
2s10s slope	pp	0.86 2017-09-29	0.79 2017-08-31	▲ 0.07
Unemployment	%	4.3 2017-09-01	4.4 2017-08-01	→ -0.1
10Y yield	%	2.33 2017-09-29	2.12 2017-08-31	▲ 0.21
2Y yield	%	1.47 2017-09-29	1.33 2017-08-31	▲ 0.14

China

Indicator	Basis	2017-09	2017-08	Change
CPI (YoY)	% YoY	1.8 2017-09-09	1.4 2017-08-09	▲ 0.4
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	52.4 2017-09-01	51.7 2017-08-01	▲ 0.7
PMI (svc)	index	55.4 2017-09-30	53.4 2017-08-31	▲ 2
Policy rate	% (1Y LPR)	4.3 2017-09-30	4.3 2017-08-31	→ 0
2s10s slope	pp	0.08 2017-09-30	0.15 2017-08-31	▼ -0.07
Unemployment	%	not recorded
10Y yield	%	3.61 2017-09-30	3.63 2017-08-31	→ -0.01
2Y yield	%	3.54 2017-09-30	3.48 2017-08-31	▲ 0.06

Euro area

Indicator	Basis	2017-09	2017-08	Change
CPI (YoY)	% YoY	1.5 2017-09-29	1.5 2017-08-31	→ 0
FX vs USD	px	not recorded
GDP	% YoY	0.3 2017-09-18	-0.5 2017-08-17	▲ 0.8
PMI (mfg)	index	58.2 2017-09-22	57.4 2017-08-23	▲ 0.8
PMI (svc)	index	55.6 2017-09-22	54.9 2017-08-23	▲ 0.7
Policy rate	%	0 2017-09-07	—	—
Unemployment	%	not recorded
10Y yield	%	1.12 2017-09-01	1.04 2017-08-01	▲ 0.07

Japan

Indicator	Basis	2017-09	2017-08	Change
Core CPI	% YoY	0 2017-09-29	-0.1 2017-08-25	→ 0.1
CPI (YoY)	% YoY	0.7 2017-09-29	0.4 2017-08-25	▲ 0.3
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2017-09-21	—	—
Unemployment	%	2.8 2017-09-29	2.8 2017-08-29	→ 0
10Y yield	%	0.06 2017-09-01	0.01 2017-08-01	→ 0.05

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

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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 56.3 → 58.8 (+2.5)

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.7 → 52.4 (+0.7)

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

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)	1.90	2.18	-0.28 ▼	2017-09-14
Core CPI	0.20	0.11	+0.09 ▬	2017-09-14
Core PCE	1.42	1.40	+0.02 ▬	2017-09-01
Policy rate	1.25	1.25	+0.00 ▬	2017-09-17
GDP	3.00	2.60	+0.40 ▲	2017-08-30
PMI (mfg)	58.80	56.30	+2.50 ▲	2017-09-01
PMI (svc)	55.30	53.90	+1.40 ▲	2017-09-06
Unemployment	4.30	4.30	+0.00 ▬	2017-09-01
10Y yield	2.20	2.20	+0.00 ▬	2017-09-15
2Y yield	1.39	1.37	+0.02 ▬	2017-09-15
2s10s slope	0.81	0.83	-0.02 ▬	2017-09-15
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.80	1.40	+0.40 ▲	2017-09-09
Policy rate	4.30	4.30	+0.00 ▬	2017-09-15
GDP	6.90	6.90	+0.00 ▬	2017-07-17
PMI (mfg)	52.40	51.70	+0.70 ▲	2017-09-01
PMI (svc)	53.40	54.50	-1.10 ▼	2017-08-31
Unemployment	n/a
10Y yield	3.60	3.60	+0.00 ▬	2017-09-15
2Y yield	3.51	3.51	-0.00 ▬	2017-09-15
2s10s slope	0.09	0.08	+0.00 ▬	2017-09-15
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.50	1.30	+0.20 ▲	2017-08-31
Policy rate	0.00	0.00	+0.00 ▬	2017-09-07
GDP	-0.50	0.00	-0.50 ▼	2017-08-17
PMI (mfg)	57.40	57.40	+0.00 ▬	2017-09-01
PMI (svc)	54.70	54.90	-0.20 ▬	2017-09-05
Unemployment	9.10	9.10	+0.00 ▬	2017-08-31
10Y yield	1.12	1.04	+0.07 ▲	2017-09-01 ⚠⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.40	0.40	+0.00 ▬	2017-08-25
Core CPI	-0.10	-0.20	+0.10 ▬	2017-08-25
Policy rate	-0.10	-0.10	+0.00 ▬	2017-07-20
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.80	2.80	+0.00 ▬	2017-08-29
10Y yield	0.06	0.01	+0.05 ▬	2017-09-01 ⚠⚠
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.