Macro Intelligence · Weekly · deep read

Macro Regime — 2018-W11

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2018-03 board

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

Standing macro backdropBORROWED

Borrowed from its month (2018-03); the weekly reads the standing object, it does not recompute the aggregate.

United States: expansion, at target
China: overheating / late-cycle
Euro area: goldilocks / reflation
Japan: stall-speed, at target

month aggregated actuals

United States

Indicator	Basis	2018-03	2018-02	Change
Core CPI	% MoM	0.22 2018-03-01	0.2 2018-02-01	→ 0.02
Core PCE	% YoY	1.91 2018-03-01	1.64 2018-02-01	▲ 0.27
CPI (YoY)	% YoY	2.33 2018-03-01	2.26 2018-02-01	→ 0.07
FX vs USD	px	not recorded
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	60.7 2018-03-01	59.1 2018-02-01	▲ 1.6
PMI (svc)	index	59.5 2018-03-05	59.9 2018-02-05	▼ -0.4
Policy rate	%	1.75 2018-03-31	1.5 2018-02-28	▲ 0.25
2s10s slope	pp	0.47 2018-03-29	0.62 2018-02-28	▼ -0.15
Unemployment	%	4 2018-03-01	4.1 2018-02-01	→ -0.1
10Y yield	%	2.74 2018-03-29	2.87 2018-02-28	▼ -0.13
2Y yield	%	2.27 2018-03-29	2.25 2018-02-28	→ 0.02

China

Indicator	Basis	2018-03	2018-02	Change
CPI (YoY)	% YoY	2.9 2018-03-09	1.5 2018-02-09	▲ 1.4
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)	index	51.5 2018-03-01	50.3 2018-02-01	▲ 1.2
PMI (svc)	index	54.6 2018-03-31	54.4 2018-02-28	→ 0.2
Policy rate	% (1Y LPR)	4.3 2018-03-30	4.3 2018-02-28	→ 0
2s10s slope	pp	0.32 2018-03-30	0.47 2018-02-28	▼ -0.15
Unemployment	%	5.1 2018-03-01	5 2018-02-01	→ 0.1
10Y yield	%	3.74 2018-03-30	3.82 2018-02-28	▼ -0.08
2Y yield	%	3.42 2018-03-30	3.35 2018-02-28	▲ 0.07

Euro area

Indicator	Basis	2018-03	2018-02	Change
CPI (YoY)	% YoY	1.1 2018-03-16	1.2 2018-02-28	→ -0.1
FX vs USD	px	not recorded
GDP	% YoY	0.2 2018-03-16	-0.9 2018-02-23	▲ 1.1
PMI (mfg)	index	56.6 2018-03-22	58.5 2018-02-21	▼ -1.9
PMI (svc)	index	55 2018-03-22	56.7 2018-02-21	▼ -1.7
Policy rate	%	0 2018-03-08	—	—
Unemployment	%	8.6 2018-03-01	—	—
10Y yield	%	1.17 2018-03-01	1.27 2018-02-01	▼ -0.1

Japan

Indicator	Basis	2018-03	2018-02	Change
Core CPI	% YoY	0.3 2018-03-30	—	—
CPI (YoY)	% YoY	1.5 2018-03-30	—	—
FX vs USD	px	not recorded
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2018-03-09	—	—
Unemployment	%	2.5 2018-03-30	—	—
10Y yield	%	0.04 2018-03-01	0.04 2018-02-01	→ 0

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

overheating / late-cycle

stall · 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

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

stall-speed, at target

unknown · 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

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 59.1 → 60.7 (+1.6)

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: 50.3 → 51.5 (+1.2)

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)	2.20	2.33	-0.13 ▼	2018-03-13
Core CPI	0.20	0.22	-0.02 ▬	2018-03-13
Core PCE	1.91	1.64	+0.27 ▲	2018-03-01
Policy rate	1.50	1.50	+0.00 ▬	2018-03-18
GDP	2.50	2.60	-0.10 ▬	2018-02-28
PMI (mfg)	60.70	59.10	+1.60 ▲	2018-03-01
PMI (svc)	59.50	59.90	-0.40 ▼	2018-03-05
Unemployment	4.10	4.00	+0.10 ▬	2018-03-09
10Y yield	2.85	2.82	+0.03 ▬	2018-03-16
2Y yield	2.31	2.29	+0.02 ▬	2018-03-16
2s10s slope	0.54	0.53	+0.01 ▬	2018-03-16
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.90	1.50	+1.40 ▲	2018-03-09
Policy rate	4.30	4.30	+0.00 ▬	2018-03-16
GDP	6.80	6.80	+0.00 ▬	2018-01-18
PMI (mfg)	51.50	50.30	+1.20 ▲	2018-03-01
PMI (svc)	54.40	55.30	-0.90 ▼	2018-02-28
Unemployment	5.10	5.00	+0.10 ▬	2018-03-01
10Y yield	3.82	3.83	-0.01 ▬	2018-03-16
2Y yield	3.45	3.48	-0.03 ▬	2018-03-16
2s10s slope	0.37	0.34	+0.02 ▬	2018-03-16
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.10	1.20	-0.10 ▬	2018-03-16
Policy rate	0.00	0.00	+0.00 ▬	2018-03-08
GDP	0.20	-0.90	+1.10 ▲	2018-03-16
PMI (mfg)	58.60	58.50	+0.10 ▬	2018-03-01
PMI (svc)	56.20	56.70	-0.50 ▼	2018-03-05
Unemployment	8.60	8.70	-0.10 ▬	2018-03-01
10Y yield	1.17	1.27	-0.10 ▼	2018-03-01 ⚠⚠
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.40	1.00	+0.40 ▲	2018-03-02
Core CPI	0.10	0.10	+0.00 ▬	2018-03-02
Policy rate	-0.10	-0.10	+0.00 ▬	2018-03-09
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.80	-0.40 ▼	2018-03-02
10Y yield	0.04	0.04	+0.00 ▬	2018-03-01 ⚠⚠
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.