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Macro Regime — 2018-W31

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↩ Home Macro index ← 2018-08 board

Standing macro backdropBORROWED

Borrowed from its month (2018-08); 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	2018-08	2018-07	Change
Core CPI	% MoM	0.07 2018-08-01	0.12 2018-07-01	→ -0.05
Core PCE	% YoY	1.9 2018-08-01	2 2018-07-01	→ -0.1
CPI (YoY)	% YoY	2.64 2018-08-01	2.85 2018-07-01	▼ -0.21
FX vs USD	px	95.14 2018-08-31	94.49 2018-07-31	▲ 0.65
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	58.4 2018-08-01	60 2018-07-02	▼ -1.6
PMI (svc)	index	55.7 2018-08-03	59.1 2018-07-05	▼ -3.4
Policy rate	%	2 2018-08-31	2 2018-07-31	→ 0
2s10s slope	pp	0.24 2018-08-31	0.29 2018-07-31	→ -0.05
Unemployment	%	3.8 2018-08-01	3.8 2018-07-01	→ 0
10Y yield	%	2.86 2018-08-31	2.96 2018-07-31	▼ -0.1
2Y yield	%	2.62 2018-08-31	2.67 2018-07-31	→ -0.05

China

Indicator	Basis	2018-08	2018-07	Change
CPI (YoY)	% YoY	2.1 2018-08-09	1.9 2018-07-10	▲ 0.2
FX vs USD	px	6.84 2018-08-31	6.81 2018-07-31	→ 0.03
GDP	% YoY	not recorded
PMI (mfg)	index	51.3 2018-08-01	51.2 2018-07-01	→ 0.1
PMI (svc)	index	54.2 2018-08-31	54 2018-07-31	→ 0.2
Policy rate	% (1Y LPR)	4.31 2018-08-31	4.31 2018-07-31	→ 0
2s10s slope	pp	0.5 2018-08-31	0.56 2018-07-31	▼ -0.05
Unemployment	%	5 2018-08-01	5.1 2018-07-01	→ -0.1
10Y yield	%	3.58 2018-08-31	3.48 2018-07-31	▲ 0.09
2Y yield	%	3.07 2018-08-31	2.92 2018-07-31	▲ 0.15

Euro area

Indicator	Basis	2018-08	2018-07	Change
CPI (YoY)	% YoY	2 2018-08-31	2.1 2018-07-31	→ -0.1
FX vs USD	px	1.17 2018-08-31	1.17 2018-07-31	→ -0
GDP	% YoY	-0.3 2018-08-17	0.1 2018-07-18	▼ -0.4
PMI (mfg)	index	54.6 2018-08-23	55.1 2018-07-24	▼ -0.5
PMI (svc)	index	54.4 2018-08-23	54.4 2018-07-24	→ 0
Policy rate	%	not recorded
Unemployment	%	8.2 2018-08-31	8.3 2018-07-31	→ -0.1
10Y yield	%	1.37 2018-08-01	1.2 2018-07-01	▲ 0.17

Japan

Indicator	Basis	2018-08	2018-07	Change
Core CPI	% YoY	0 2018-08-24	0 2018-07-20	→ 0
CPI (YoY)	% YoY	0.9 2018-08-24	0.7 2018-07-20	▲ 0.2
FX vs USD	px	111 2018-08-31	110.99 2018-07-31	→ 0.01
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	2.5 2018-08-31	2.4 2018-07-31	→ 0.1
10Y yield	%	0.11 2018-08-01	0.06 2018-07-01	→ 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.

○ 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.

○ 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.

● 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

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

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.19588 → 1.36579 (+0.169905)

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)	2.64	2.90	-0.26 ▼	2018-08-01
Core CPI	0.07	0.20	-0.13 ▼	2018-08-01
Core PCE	1.90	1.90	+0.00 ▬	2018-08-01
Policy rate	2.00	2.00	+0.00 ▬	2018-08-05
GDP	4.10	2.50	+1.60 ▲	2018-07-27
PMI (mfg)	58.40	60.00	-1.60 ▼	2018-08-01
PMI (svc)	55.70	59.10	-3.40 ▼	2018-08-03
Unemployment	3.90	3.80	+0.10 ▲	2018-08-03
10Y yield	2.95	2.98	-0.03 ▬	2018-08-03
2Y yield	2.63	2.66	-0.03 ▬	2018-08-03
2s10s slope	0.32	0.32	+0.00 ▬	2018-08-03
FX vs USD	95.14	95.17	-0.03 ▬	2018-08-03

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.90	1.80	+0.10 ▬	2018-07-10
Policy rate	4.31	4.31	+0.00 ▬	2018-08-03
GDP	6.70	6.80	-0.10 ▬	2018-07-16
PMI (mfg)	51.30	51.20	+0.10 ▬	2018-08-01
PMI (svc)	54.00	55.00	-1.00 ▼	2018-07-31
Unemployment	5.00	5.10	-0.10 ▬	2018-08-01
10Y yield	3.46	3.47	-0.01 ▬	2018-08-03
2Y yield	2.85	2.88	-0.04 ▬	2018-08-03
2s10s slope	0.61	0.59	+0.02 ▬	2018-08-03
FX vs USD	6.83	6.82	+0.01 ▬	2018-08-03

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.10	2.00	+0.10 ▲	2018-07-31
Policy rate	0.00	0.00	+0.00 ▬	2018-07-26
GDP	0.10	0.50	-0.40 ▼	2018-07-18
PMI (mfg)	55.10	55.10	+0.00 ▬	2018-08-01
PMI (svc)	54.20	54.40	-0.20 ▬	2018-08-03
Unemployment	8.30	8.40	-0.10 ▬	2018-07-31
10Y yield	1.37	1.20	+0.17 ▲	2018-08-01
FX vs USD	1.16	1.17	-0.01 ▬	2018-08-03

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.70	0.70	+0.00 ▬	2018-07-20
Core CPI	0.00	0.10	-0.10 ▬	2018-07-20
Policy rate	-0.10	-0.10	+0.00 ▬	2018-07-31
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.20	+0.20 ▲	2018-07-31
10Y yield	0.11	0.06	+0.05 ▬	2018-08-01
FX vs USD	111.69	111.62	+0.07 ▬	2018-08-03

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.