Macro Intelligence · Weekly · deep read
←

Macro Regime — 2019-W05

→

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

Read at: thesis narrative mechanism data
↩ HomeMacro index← 2019-02 board

Standing macro backdropBORROWED

Borrowed from its month (2019-02); the weekly reads the standing object, it does not recompute the aggregate.

month aggregated actuals

United States

IndicatorBasis2019-022019-01Change
Core CPI% MoM0.16 2019-02-010.27 2019-01-01▼ -0.11
Core PCE% YoY1.74 2019-02-011.84 2019-01-01→ -0.1
CPI (YoY)% YoY1.52 2019-02-011.49 2019-01-01→ 0.03
FX vs USDpx96.16 2019-02-2895.58 2019-01-31▲ 0.58
GDP% QoQ ann.not recorded
PMI (mfg)index56.6 2019-02-0154.3 2019-01-03▲ 2.3
PMI (svc)index56.7 2019-02-0557.6 2019-01-07▼ -0.9
Policy rate%2.5 2019-02-282.5 2019-01-31→ 0
2s10s slopepp0.21 2019-02-280.18 2019-01-31→ 0.03
Unemployment%3.8 2019-02-014 2019-01-01▼ -0.2
10Y yield%2.73 2019-02-282.63 2019-01-31▲ 0.1
2Y yield%2.52 2019-02-282.45 2019-01-31▲ 0.07

China

IndicatorBasis2019-022019-01Change
CPI (YoY)% YoY1.7 2019-02-151.9 2019-01-10▼ -0.2
FX vs USDpx6.69 2019-02-286.72 2019-01-31→ -0.03
GDP% YoYnot recorded
PMI (mfg)index49.2 2019-02-0149.5 2019-01-01→ -0.3
PMI (svc)index54.3 2019-02-2854.7 2019-01-31▼ -0.4
Policy rate% (1Y LPR)4.31 2019-02-284.31 2019-01-31→ 0
2s10s slopepp0.57 2019-02-280.51 2019-01-31▲ 0.06
Unemployment%5.3 2019-02-015.1 2019-01-01▲ 0.2
10Y yield%3.17 2019-02-283.1 2019-01-31▲ 0.07
2Y yield%2.6 2019-02-282.6 2019-01-31→ 0.01

Euro area

IndicatorBasis2019-022019-01Change
CPI (YoY)% YoY1.4 2019-02-221.6 2019-01-17▼ -0.2
FX vs USDpx1.14 2019-02-281.15 2019-01-31→ -0.01
GDP% YoY-1 2019-02-220 2019-01-17▼ -1
PMI (mfg)index49.2 2019-02-2150.5 2019-01-24▼ -1.3
PMI (svc)index52.3 2019-02-2150.8 2019-01-24▲ 1.5
Policy rate%not recorded
Unemployment%not recorded
10Y yield%1.12 2019-02-011.2 2019-01-01▼ -0.08

Japan

IndicatorBasis2019-022019-01Change
Core CPI% YoY0.3 2019-02-220.1 2019-01-18▲ 0.2
CPI (YoY)% YoY0.2 2019-02-220.3 2019-01-18→ -0.1
FX vs USDpx110.86 2019-02-28108.98 2019-01-31▲ 1.88
GDP% YoYnot recorded
PMI (mfg)not recorded
Policy rate%not recorded
Unemployment%2.4 2019-02-01——
10Y yield%-0.01 2019-02-010 2019-01-01→ -0.01

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.
○ no change
Euro area
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
deflation watch
unknown · deflation risk · on hold
Activity is soft and inflation is at/below zero — the risk is entrenched deflation. Favors duration (long bonds) and quality; cyclicals struggle until policy eases decisively. The catalyst to watch is stimulus / a policy cut.
○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)
Trigger: pmi_mfg: 54.3 → 56.6 (+2.3)
  1. 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.
  2. 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.
  3. 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

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

IndicatorCurrentPriorΔAs of
CPI (YoY)1.521.90-0.38 ▼2019-02-01
Core CPI0.160.20-0.04 ▬2019-02-01
Core PCE1.741.84-0.10 ▼2019-02-01
Policy rate2.502.50+0.00 ▬2019-02-03
GDP2.503.40-0.90 ▼2019-01-01
PMI (mfg)56.6054.30+2.30 ▲2019-02-01
PMI (svc)57.6060.70-3.10 ▼2019-01-07
Unemployment3.803.90-0.10 ▼2019-02-01
10Y yield2.702.63+0.07 ▲2019-02-01
2Y yield2.522.45+0.07 ▲2019-02-01
2s10s slope0.180.18+0.00 ▬2019-02-01
FX vs USD95.5895.58+0.00 ▬2019-02-01

China

IndicatorCurrentPriorΔAs of
CPI (YoY)1.902.20-0.30 ▼2019-01-10
Policy rate4.314.31+0.00 ▬2019-02-03
GDP6.406.50-0.10 ▬2019-01-21
PMI (mfg)49.2049.50-0.30 ▬2019-02-01
PMI (svc)54.7053.80+0.90 ▲2019-01-31
Unemployment5.305.10+0.20 ▲2019-02-01
10Y yield3.103.10-0.00 ▬2019-02-03
2Y yield2.572.57-0.00 ▬2019-02-03
2s10s slope0.520.52+0.00 ▬2019-02-03
FX vs USD6.706.72-0.02 ▬2019-02-01

Euro area

IndicatorCurrentPriorΔAs of
CPI (YoY)1.401.60-0.20 ▼2019-02-01
Policy rate0.000.00+0.00 ▬2019-01-24
GDP0.00-0.20+0.20 ▬2019-01-17
PMI (mfg)50.5050.50+0.00 ▬2019-02-01
PMI (svc)50.8051.20-0.40 ▼2019-01-24
Unemployment7.907.90+0.00 ▬2019-01-31
10Y yield1.121.20-0.08 ▼2019-02-01
FX vs USD1.141.15-0.00 ▬2019-02-01

Japan

IndicatorCurrentPriorΔAs of
CPI (YoY)0.300.80-0.50 ▼2019-01-18
Core CPI0.100.10+0.00 ▬2019-01-18
Policy rate-0.10-0.10+0.00 ▬2019-01-23
GDPn/a
PMI (mfg)n/a
Unemployment2.402.50-0.10 ▼2019-02-01
10Y yield-0.010.00-0.01 ▬2019-02-01
FX vs USD108.84108.98-0.14 ▬2019-02-01

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.