Macro Intelligence · Weekly · deep read

Macro Regime — 2018-W50

→

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2018-12 board

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

Standing macro backdropBORROWED

Borrowed from its month (2018-12); the weekly reads the standing object, it does not recompute the aggregate.

United States: expansion, at target
China: stall-speed, at target
Euro area: stall-speed, at target
Japan: disinflationary stall

month aggregated actuals

United States

Indicator	Basis	2018-12	2018-11	Change
Core CPI	% MoM	0.24 2018-12-01	0.2 2018-11-01	→ 0.04
Core PCE	% YoY	2.04 2018-12-01	2.01 2018-11-01	→ 0.03
CPI (YoY)	% YoY	2 2018-12-01	2.15 2018-11-01	▼ -0.15
FX vs USD	px	96.17 2018-12-31	97.27 2018-11-30	▼ -1.1
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	58.8 2018-12-03	57.5 2018-11-01	▲ 1.3
PMI (svc)	index	60.7 2018-12-06	60.3 2018-11-05	▲ 0.4
Policy rate	%	2.5 2018-12-31	2.25 2018-11-30	▲ 0.25
2s10s slope	pp	0.21 2018-12-31	0.21 2018-11-30	→ 0
Unemployment	%	3.9 2018-12-01	3.8 2018-11-01	→ 0.1
10Y yield	%	2.69 2018-12-31	3.01 2018-11-30	▼ -0.32
2Y yield	%	2.48 2018-12-31	2.8 2018-11-30	▼ -0.32

China

Indicator	Basis	2018-12	2018-11	Change
CPI (YoY)	% YoY	2.2 2018-12-09	2.5 2018-11-09	▼ -0.3
FX vs USD	px	6.88 2018-12-31	6.94 2018-11-30	→ -0.06
GDP	% YoY	not recorded
PMI (mfg)	index	49.4 2018-12-01	50 2018-11-01	▼ -0.6
PMI (svc)	index	53.8 2018-12-31	53.4 2018-11-30	▲ 0.4
Policy rate	% (1Y LPR)	4.31 2018-12-29	4.31 2018-11-30	→ 0
2s10s slope	pp	0.52 2018-12-31	0.66 2018-11-30	▼ -0.14
Unemployment	%	4.9 2018-12-01	4.8 2018-11-01	→ 0.1
10Y yield	%	3.23 2018-12-31	3.35 2018-11-30	▼ -0.13
2Y yield	%	2.71 2018-12-31	2.7 2018-11-30	→ 0.01

Euro area

Indicator	Basis	2018-12	2018-11	Change
CPI (YoY)	% YoY	1.9 2018-12-17	2 2018-11-30	→ -0.1
FX vs USD	px	1.14 2018-12-31	1.14 2018-11-30	→ 0
GDP	% YoY	-0.2 2018-12-17	0.2 2018-11-16	▼ -0.4
PMI (mfg)	index	51.4 2018-12-14	51.5 2018-11-23	→ -0.1
PMI (svc)	index	51.4 2018-12-14	53.1 2018-11-23	▼ -1.7
Policy rate	%	0 2018-12-13	—	—
Unemployment	%	not recorded
10Y yield	%	1.21 2018-12-01	1.41 2018-11-01	▼ -0.19

Japan

Indicator	Basis	2018-12	2018-11	Change
Core CPI	% YoY	0.1 2018-12-21	0.2 2018-11-22	→ -0.1
CPI (YoY)	% YoY	0.8 2018-12-21	1.4 2018-11-22	▼ -0.6
FX vs USD	px	110.33 2018-12-31	113.41 2018-11-30	▼ -3.08
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2018-12-20	—	—
Unemployment	%	2.5 2018-12-28	2.4 2018-11-30	→ 0.1
10Y yield	%	-0.01 2018-12-01	0.09 2018-11-01	▼ -0.1

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

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 ⚠ stale

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

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: 57.5 → 58.8 (+1.3)

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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 50 → 49.4 (-0.6)

Manufacturing PMI is below 50 and still falling.
Why: Below 50 means more firms are contracting than expanding; *falling* means the contraction is deepening, not bottoming — that combination is what leads earnings revisions down.
Investors rotate toward defensives and government bonds.
Why: When growth is deteriorating, steady-demand sectors (staples, utilities, healthcare) hold earnings better, and government bonds act as a hedge that rallies if the slowdown deepens further.
Cyclicals, small-caps, EM and industrial commodities underperform.
Why: These are geared to the physical cycle and to leverage, so worsening activity hits their earnings and risk appetite hardest; commodity demand softens with industrial output.

Helps
defensive sectors (staples, utilities, healthcare)long government bondsquality/large-cap

Hurts
cyclicalssmall-capsEM equityindustrial commodities

Caveat: A shallow dip just below 50 that quickly reverses ('soft patch') doesn't trigger the full defensive rotation; the level must persist.

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.

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	2.00	+0.20 ▲	2018-12-12
Core CPI	0.20	0.24	-0.04 ▬	2018-12-12
Core PCE	2.04	1.80	+0.24 ▲	2018-12-01
Policy rate	2.25	2.25	+0.00 ▬	2018-12-16
GDP	3.50	3.50	+0.00 ▬	2018-11-28
PMI (mfg)	58.80	57.50	+1.30 ▲	2018-12-03
PMI (svc)	60.70	60.30	+0.40 ▲	2018-12-06
Unemployment	3.70	3.90	-0.20 ▼	2018-12-07
10Y yield	2.89	2.91	-0.02 ▬	2018-12-14
2Y yield	2.73	2.75	-0.02 ▬	2018-12-14
2s10s slope	0.16	0.16	+0.00 ▬	2018-12-14
FX vs USD	97.44	97.06	+0.38 ▬	2018-12-14

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.20	2.50	-0.30 ▼	2018-12-09
Policy rate	4.31	4.31	+0.00 ▬	2018-12-14
GDP	6.50	6.70	-0.20 ▼	2018-10-19
PMI (mfg)	49.40	50.00	-0.60 ▼	2018-12-01
PMI (svc)	53.40	53.90	-0.50 ▼	2018-11-30
Unemployment	4.90	4.80	+0.10 ▲	2018-12-01
10Y yield	3.35	3.33	+0.02 ▬	2018-12-14
2Y yield	2.65	2.64	+0.02 ▬	2018-12-14
2s10s slope	0.69	0.70	-0.00 ▬	2018-12-14
FX vs USD	6.88	6.88	+0.00 ▬	2018-12-14

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.00	2.20	-0.20 ▼	2018-11-30
Policy rate	0.00	0.00	+0.00 ▬	2018-12-13
GDP	0.20	0.50	-0.30 ▼	2018-11-16
PMI (mfg)	51.40	51.80	-0.40 ▼	2018-12-14
PMI (svc)	51.40	53.40	-2.00 ▼	2018-12-14
Unemployment	8.10	8.10	+0.00 ▬	2018-11-30
10Y yield	1.21	1.41	-0.19 ▼	2018-12-01 ⚠⚠
FX vs USD	1.14	1.14	-0.00 ▬	2018-12-14

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.40	1.20	+0.20 ▲	2018-11-22
Core CPI	0.20	0.10	+0.10 ▬	2018-11-22
Policy rate	-0.10	-0.10	+0.00 ▬	2018-10-31
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.30	+0.10 ▲	2018-11-30
10Y yield	-0.01	0.09	-0.10 ▼	2018-12-01 ⚠⚠
FX vs USD	113.56	113.29	+0.27 ▬	2018-12-14

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.