Macro Intelligence · Weekly · deep read

Macro Regime — 2018-W39

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2018-09 board

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

Standing macro backdropBORROWED

Borrowed from its month (2018-09); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2018-09	2018-08	Change
Core CPI	% MoM	0.18 2018-09-01	0.07 2018-08-01	▲ 0.11
Core PCE	% YoY	1.96 2018-09-01	1.9 2018-08-01	→ 0.06
CPI (YoY)	% YoY	2.33 2018-09-01	2.64 2018-08-01	▼ -0.31
FX vs USD	px	95.19 2018-09-28	95.14 2018-08-31	→ 0.05
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	60.8 2018-09-04	58.4 2018-08-01	▲ 2.4
PMI (svc)	index	58.5 2018-09-06	55.7 2018-08-03	▲ 2.8
Policy rate	%	2.25 2018-09-30	2 2018-08-31	▲ 0.25
2s10s slope	pp	0.24 2018-09-28	0.24 2018-08-31	→ 0
Unemployment	%	3.7 2018-09-01	3.8 2018-08-01	→ -0.1
10Y yield	%	3.05 2018-09-28	2.86 2018-08-31	▲ 0.19
2Y yield	%	2.81 2018-09-28	2.62 2018-08-31	▲ 0.19

China

Indicator	Basis	2018-09	2018-08	Change
CPI (YoY)	% YoY	2.3 2018-09-10	2.1 2018-08-09	▲ 0.2
FX vs USD	px	6.88 2018-09-28	6.84 2018-08-31	→ 0.04
GDP	% YoY	not recorded
PMI (mfg)	index	50.8 2018-09-01	51.3 2018-08-01	▼ -0.5
PMI (svc)	index	54.9 2018-09-30	54.2 2018-08-31	▲ 0.7
Policy rate	% (1Y LPR)	4.31 2018-09-30	4.31 2018-08-31	→ 0
2s10s slope	pp	0.47 2018-09-30	0.5 2018-08-31	→ -0.03
Unemployment	%	4.9 2018-09-01	5 2018-08-01	→ -0.1
10Y yield	%	3.61 2018-09-30	3.58 2018-08-31	→ 0.04
2Y yield	%	3.14 2018-09-30	3.07 2018-08-31	▲ 0.07

Euro area

Indicator	Basis	2018-09	2018-08	Change
CPI (YoY)	% YoY	2.1 2018-09-28	2 2018-08-31	→ 0.1
FX vs USD	px	1.16 2018-09-28	1.17 2018-08-31	→ -0
GDP	% YoY	0.2 2018-09-17	-0.3 2018-08-17	▲ 0.5
PMI (mfg)	index	53.3 2018-09-21	54.6 2018-08-23	▼ -1.3
PMI (svc)	index	54.7 2018-09-21	54.4 2018-08-23	→ 0.3
Policy rate	%	0 2018-09-13	—	—
Unemployment	%	not recorded
10Y yield	%	1.32 2018-09-01	1.37 2018-08-01	→ -0.05

Japan

Indicator	Basis	2018-09	2018-08	Change
Core CPI	% YoY	0.2 2018-09-21	0 2018-08-24	▲ 0.2
CPI (YoY)	% YoY	1.3 2018-09-21	0.9 2018-08-24	▲ 0.4
FX vs USD	px	113.36 2018-09-28	111 2018-08-31	▲ 2.36
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2018-09-19	—	—
Unemployment	%	2.4 2018-09-28	2.5 2018-08-31	→ -0.1
10Y yield	%	0.12 2018-09-01	0.11 2018-08-01	→ 0.01

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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

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 ⚠ 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

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.

● 1 active

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 58.4 → 60.8 (+2.4)

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

M1Inflation surprise (upside)

Trigger: core_cpi: 0 → 0.2 (+0.2)

Core inflation comes in higher than the prior reading.
Why: Core strips out food and energy, so a move in it signals persistent, broad price pressure rather than a one-off in volatile items — the kind a central bank reacts to.
The market reprices the policy-rate path higher.
Why: If inflation is stickier than thought, the central bank must keep rates higher for longer to cool it; traders bake that expectation into the whole rate curve immediately, before any actual hike.
Real yieldsreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. rise, not just nominal yieldsnominal yield — The headline interest rate on a bond, before subtracting inflation..
Why: The inflation is already in the print, so the jump in nominal yields isn't just compensating for higher inflation — it's a genuine rise in the inflation-adjusted return demanded by lenders.
A higher real yield is a higher 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. on future cash flows.
Why: Money earned years from now is discounted back to today at the real rate; when that rate rises, distant cash flows shrink in present-value terms more than near ones.
Long-duration growth equities de-rate hardest; banks and value hold up; the currency firms.
Why: Growth stocks are valued mostly on far-future profits, so a higher discount rate hits them most. Banks earn more as rates rise (wider margins), and value/cyclical earnings sit nearer in time. Higher local rates also pull in foreign capital, lifting the currency.

Helps
financialsvalueUSDshort-duration bonds

Hurts
long-duration growth equitieslong-dated government bondsgold (in real terms)

Caveat: Misfires if the print is read as one-off/transitory, or if growth is simultaneously rolling over (a stagflation mix), where cyclicals don't get the usual lift.

House-view hook — empty (textbook default; Stephen's view bakes in here).

What would change the read

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.
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)	2.70	2.33	+0.37 ▲	2018-09-13
Core CPI	0.10	0.18	-0.08 ▬	2018-09-13
Core PCE	2.00	1.96	+0.04 ▬	2018-09-28
Policy rate	2.25	2.25	+0.00 ▬	2018-09-30
GDP	4.20	4.20	+0.00 ▬	2018-09-27
PMI (mfg)	60.80	58.40	+2.40 ▲	2018-09-04
PMI (svc)	58.50	55.70	+2.80 ▲	2018-09-06
Unemployment	3.90	3.70	+0.20 ▲	2018-09-07
10Y yield	3.05	3.06	-0.01 ▬	2018-09-28
2Y yield	2.81	2.83	-0.02 ▬	2018-09-28
2s10s slope	0.24	0.23	+0.01 ▬	2018-09-28
FX vs USD	95.19	95.00	+0.19 ▬	2018-09-28

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.30	2.10	+0.20 ▲	2018-09-10
Policy rate	4.31	4.31	+0.00 ▬	2018-09-30
GDP	6.70	6.80	-0.10 ▬	2018-07-16
PMI (mfg)	50.80	51.30	-0.50 ▼	2018-09-01
PMI (svc)	54.90	54.20	+0.70 ▲	2018-09-30
Unemployment	4.90	5.00	-0.10 ▬	2018-09-01
10Y yield	3.61	3.61	-0.00 ▬	2018-09-30
2Y yield	3.14	3.17	-0.03 ▬	2018-09-30
2s10s slope	0.47	0.44	+0.03 ▬	2018-09-30
FX vs USD	6.88	6.88	+0.00 ▬	2018-09-28

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.10	2.00	+0.10 ▲	2018-09-28
Policy rate	0.00	0.00	+0.00 ▬	2018-09-13
GDP	0.20	-0.30	+0.50 ▲	2018-09-17
PMI (mfg)	53.30	54.60	-1.30 ▼	2018-09-21
PMI (svc)	54.70	54.40	+0.30 ▲	2018-09-21
Unemployment	8.20	8.30	-0.10 ▼	2018-08-31
10Y yield	1.32	1.37	-0.05 ▬	2018-09-01 ⚠⚠
FX vs USD	1.16	1.17	-0.01 ▬	2018-09-28

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.30	0.90	+0.40 ▲	2018-09-21
Core CPI	0.20	0.00	+0.20 ▲	2018-09-21
Policy rate	-0.10	-0.10	+0.00 ▬	2018-09-19
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.50	-0.10 ▼	2018-09-28
10Y yield	0.12	0.11	+0.01 ▬	2018-09-01 ⚠⚠
FX vs USD	113.36	112.70	+0.65 ▲	2018-09-28

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.