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Macro Regime — 2018-W22

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↩ Home Macro index ← 2018-06 board

Standing macro backdropBORROWED

Borrowed from its month (2018-06); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2018-06	2018-05	Change
Core CPI	% MoM	0.1 2018-06-01	0.2 2018-05-01	→ -0.1
Core PCE	% YoY	1.94 2018-06-01	1.98 2018-05-01	→ -0.04
CPI (YoY)	% YoY	2.81 2018-06-01	2.78 2018-05-01	→ 0.03
FX vs USD	px	94.63 2018-06-29	93.99 2018-05-31	▲ 0.64
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	58.7 2018-06-01	57.9 2018-05-01	▲ 0.8
PMI (svc)	index	58.6 2018-06-05	56.8 2018-05-03	▲ 1.8
Policy rate	%	2 2018-06-30	1.75 2018-05-31	▲ 0.25
2s10s slope	pp	0.33 2018-06-29	0.43 2018-05-31	▼ -0.1
Unemployment	%	4 2018-06-01	3.8 2018-05-01	▲ 0.2
10Y yield	%	2.85 2018-06-29	2.83 2018-05-31	→ 0.02
2Y yield	%	2.52 2018-06-29	2.4 2018-05-31	▲ 0.12

China

Indicator	Basis	2018-06	2018-05	Change
CPI (YoY)	% YoY	1.8 2018-06-09	1.8 2018-05-10	→ 0
FX vs USD	px	6.63 2018-06-29	6.42 2018-05-31	→ 0.21
GDP	% YoY	not recorded
PMI (mfg)	index	51.5 2018-06-01	51.9 2018-05-01	▼ -0.4
PMI (svc)	index	55 2018-06-30	54.9 2018-05-31	→ 0.1
Policy rate	% (1Y LPR)	4.31 2018-06-29	4.31 2018-05-31	→ 0
2s10s slope	pp	0.22 2018-06-29	0.35 2018-05-31	▼ -0.13
Unemployment	%	4.8 2018-06-01	4.8 2018-05-01	→ 0
10Y yield	%	3.48 2018-06-29	3.61 2018-05-31	▼ -0.14
2Y yield	%	3.26 2018-06-29	3.27 2018-05-31	→ -0.01

Euro area

Indicator	Basis	2018-06	2018-05	Change
CPI (YoY)	% YoY	2 2018-06-29	1.9 2018-05-31	→ 0.1
FX vs USD	px	1.16 2018-06-29	1.17 2018-05-31	→ -0.01
GDP	% YoY	0.5 2018-06-15	0.3 2018-05-16	→ 0.2
PMI (mfg)	index	55 2018-06-22	55.5 2018-05-23	▼ -0.5
PMI (svc)	index	55 2018-06-22	53.9 2018-05-23	▲ 1.1
Policy rate	%	0 2018-06-14	—	—
Unemployment	%	not recorded
10Y yield	%	1.29 2018-06-01	1.24 2018-05-01	▲ 0.05

Japan

Indicator	Basis	2018-06	2018-05	Change
Core CPI	% YoY	0.1 2018-06-22	0.1 2018-05-18	→ 0
CPI (YoY)	% YoY	0.7 2018-06-22	0.6 2018-05-18	→ 0.1
FX vs USD	px	110.49 2018-06-29	108.71 2018-05-31	▲ 1.77
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2018-06-15	—	—
Unemployment	%	2.2 2018-06-29	2.5 2018-05-29	▼ -0.3
10Y yield	%	0.03 2018-06-01	0.03 2018-05-01	→ 0

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.

○ no change

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.

○ no change

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.

● 1 active

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 57.9 → 58.7 (+0.8)

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

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.

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

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.3 → 0.1 (-0.2)

Core inflation falls more than the prior reading.
Why: A faster-than-expected cooling in the persistent part of inflation tells the market the central bank has more room to ease.
The market prices an earlier or deeper easing path.
Why: Lower inflation removes the reason to keep rates high, so traders pull forward expected cuts into the curve.
Real yieldsreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. fall.
Why: The expected policy ratepolicy 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. drops while inflation expectations stay anchored, so the inflation-adjusted return demanded by lenders declines.
A lower 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. re-rates long-duration assets upward; long bonds rally.
Why: Future cash flows are now discounted less harshly, lifting growth equities most; bond prices rise mechanically as their yields fall.

Helps
long-duration growth equitieslong-dated government bondsgoldrate-sensitive sectors (utilities, REITs)

Hurts
USD (vs easing-laggard peers)bank net-interest margins

Caveat: Misfires if disinflation is driven by demand collapse rather than supply normalization — then the growth scare dominates and risk assets fall despite lower yields.

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.
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.

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.81	2.50	+0.31 ▲	2018-06-01
Core CPI	0.10	0.10	+0.00 ▬	2018-06-01
Core PCE	1.94	1.80	+0.14 ▲	2018-06-01
Policy rate	1.75	1.75	+0.00 ▬	2018-06-03
GDP	2.20	2.30	-0.10 ▬	2018-05-30
PMI (mfg)	58.70	57.90	+0.80 ▲	2018-06-01
PMI (svc)	56.80	58.80	-2.00 ▼	2018-05-03
Unemployment	4.00	3.90	+0.10 ▲	2018-06-01
10Y yield	2.89	2.83	+0.06 ▲	2018-06-01
2Y yield	2.47	2.40	+0.07 ▲	2018-06-01
2s10s slope	0.42	0.43	-0.01 ▬	2018-06-01
FX vs USD	94.19	93.99	+0.20 ▬	2018-06-01

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.80	2.10	-0.30 ▼	2018-05-10
Policy rate	4.31	4.31	+0.00 ▬	2018-06-01
GDP	6.80	6.80	+0.00 ▬	2018-04-17
PMI (mfg)	51.50	51.90	-0.40 ▼	2018-06-01
PMI (svc)	54.90	54.80	+0.10 ▬	2018-05-31
Unemployment	4.80	4.80	+0.00 ▬	2018-06-01
10Y yield	3.62	3.61	+0.01 ▬	2018-06-01
2Y yield	3.31	3.27	+0.04 ▬	2018-06-01
2s10s slope	0.31	0.35	-0.03 ▬	2018-06-01
FX vs USD	6.41	6.42	-0.01 ▬	2018-06-01

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.90	1.20	+0.70 ▲	2018-05-31
Policy rate	0.00	0.00	+0.00 ▬	2018-04-26
GDP	0.30	1.00	-0.70 ▼	2018-05-16
PMI (mfg)	55.50	55.50	+0.00 ▬	2018-06-01
PMI (svc)	53.90	54.70	-0.80 ▼	2018-05-23
Unemployment	8.50	8.50	+0.00 ▬	2018-05-31
10Y yield	1.29	1.24	+0.05 ▲	2018-06-01
FX vs USD	1.17	1.17	+0.00 ▬	2018-06-01

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.60	1.10	-0.50 ▼	2018-05-18
Core CPI	0.10	0.30	-0.20 ▼	2018-05-18
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 ▬	2018-05-29
10Y yield	0.03	0.03	+0.00 ▬	2018-06-01
FX vs USD	108.75	108.71	+0.04 ▬	2018-06-01

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.