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Macro Regime — 2018-W18

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Standing macro backdropBORROWED

Borrowed from its month (2018-05); 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: disinflationary stall

month aggregated actuals

United States

Indicator	Basis	2018-05	2018-04	Change
Core CPI	% MoM	0.2 2018-05-01	0.14 2018-04-01	→ 0.06
Core PCE	% YoY	1.98 2018-05-01	1.88 2018-04-01	→ 0.1
CPI (YoY)	% YoY	2.78 2018-05-01	2.47 2018-04-01	▲ 0.31
FX vs USD	px	93.99 2018-05-31	—	—
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	57.9 2018-05-01	59.3 2018-04-02	▼ -1.4
PMI (svc)	index	56.8 2018-05-03	58.8 2018-04-04	▼ -2
Policy rate	%	1.75 2018-05-31	1.75 2018-04-30	→ 0
2s10s slope	pp	0.43 2018-05-31	0.46 2018-04-30	→ -0.03
Unemployment	%	3.8 2018-05-01	4 2018-04-01	▼ -0.2
10Y yield	%	2.83 2018-05-31	2.95 2018-04-30	▼ -0.12
2Y yield	%	2.4 2018-05-31	2.49 2018-04-30	▼ -0.09

China

Indicator	Basis	2018-05	2018-04	Change
CPI (YoY)	% YoY	1.8 2018-05-10	2.1 2018-04-11	▼ -0.3
FX vs USD	px	6.42 2018-05-31	—	—
GDP	% YoY	not recorded
PMI (mfg)	index	51.9 2018-05-01	51.4 2018-04-01	▲ 0.5
PMI (svc)	index	54.9 2018-05-31	54.8 2018-04-30	→ 0.1
Policy rate	% (1Y LPR)	4.31 2018-05-31	4.31 2018-04-28	→ 0
2s10s slope	pp	0.35 2018-05-31	0.53 2018-04-28	▼ -0.18
Unemployment	%	4.8 2018-05-01	4.9 2018-04-01	→ -0.1
10Y yield	%	3.61 2018-05-31	3.62 2018-04-28	→ -0.01
2Y yield	%	3.27 2018-05-31	3.09 2018-04-28	▲ 0.17

Euro area

Indicator	Basis	2018-05	2018-04	Change
CPI (YoY)	% YoY	1.9 2018-05-31	1.3 2018-04-18	▲ 0.6
FX vs USD	px	1.17 2018-05-31	—	—
GDP	% YoY	0.3 2018-05-16	1 2018-04-18	▼ -0.7
PMI (mfg)	index	55.5 2018-05-23	56 2018-04-23	▼ -0.5
PMI (svc)	index	53.9 2018-05-23	55 2018-04-23	▼ -1.1
Policy rate	%	not recorded
Unemployment	%	8.5 2018-05-31	8.5 2018-04-04	→ 0
10Y yield	%	1.24 2018-05-01	1.13 2018-04-01	▲ 0.11

Japan

Indicator	Basis	2018-05	2018-04	Change
Core CPI	% YoY	0.1 2018-05-18	0.3 2018-04-30	▼ -0.2
CPI (YoY)	% YoY	0.6 2018-05-18	1.1 2018-04-30	▼ -0.5
FX vs USD	px	108.71 2018-05-31	—	—
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	2.5 2018-05-29	2.5 2018-04-27	→ 0
10Y yield	%	0.03 2018-05-01	0.05 2018-04-01	→ -0.02

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.

○ 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

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.

● 1 active

Japan

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

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: 51.4 → 51.9 (+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

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.12553 → 1.23622 (+0.110684)

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)	2.78	2.40	+0.38 ▲	2018-05-01
Core CPI	0.20	0.20	+0.00 ▬	2018-05-01
Core PCE	1.98	1.90	+0.08 ▬	2018-05-01
Policy rate	1.75	1.75	+0.00 ▬	2018-05-06
GDP	2.30	2.10	+0.20 ▬	2018-04-27
PMI (mfg)	57.90	59.30	-1.40 ▼	2018-05-01
PMI (svc)	56.80	58.80	-2.00 ▼	2018-05-03
Unemployment	3.90	3.80	+0.10 ▲	2018-05-04
10Y yield	2.95	2.94	+0.01 ▬	2018-05-04
2Y yield	2.51	2.49	+0.02 ▬	2018-05-04
2s10s slope	0.44	0.45	-0.01 ▬	2018-05-04
FX vs USD	n/a

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.10	2.90	-0.80 ▼	2018-04-11
Policy rate	4.31	4.31	+0.00 ▬	2018-05-04
GDP	6.80	6.80	+0.00 ▬	2018-04-17
PMI (mfg)	51.90	51.40	+0.50 ▲	2018-05-01
PMI (svc)	54.80	54.60	+0.20 ▬	2018-04-30
Unemployment	4.80	4.90	-0.10 ▼	2018-05-01
10Y yield	3.63	3.65	-0.01 ▬	2018-05-04
2Y yield	3.11	3.14	-0.03 ▬	2018-05-04
2s10s slope	0.52	0.51	+0.01 ▬	2018-05-04
FX vs USD	n/a

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.20	1.30	-0.10 ▼	2018-05-03
Policy rate	0.00	0.00	+0.00 ▬	2018-04-26
GDP	1.00	0.20	+0.80 ▲	2018-04-18
PMI (mfg)	56.20	56.00	+0.20 ▬	2018-05-02
PMI (svc)	54.70	55.00	-0.30 ▬	2018-05-04
Unemployment	8.50	8.50	+0.00 ▬	2018-05-02
10Y yield	1.24	1.13	+0.11 ▲	2018-05-01
FX vs USD	n/a

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.10	1.50	-0.40 ▼	2018-04-30
Core CPI	0.30	0.30	+0.00 ▬	2018-04-30
Policy rate	-0.10	-0.10	+0.00 ▬	2018-04-27
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.50	2.50	+0.00 ▬	2018-04-27
10Y yield	0.03	0.05	-0.02 ▬	2018-05-01
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.