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Macro Regime — 2019-W27

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↩ Home Macro index ← 2019-07 board

Standing macro backdropBORROWED

Borrowed from its month (2019-07); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2019-07	2019-06	Change
Core CPI	% MoM	0.21 2019-07-01	0.2 2019-06-01	→ 0.01
Core PCE	% YoY	1.64 2019-07-01	1.66 2019-06-01	→ -0.02
CPI (YoY)	% YoY	1.83 2019-07-01	1.67 2019-06-01	▲ 0.16
FX vs USD	px	98.52 2019-07-31	96.13 2019-06-28	▲ 2.39
GDP	% QoQ ann.	4.8 2019-07-01	—	—
PMI (mfg)	index	51.7 2019-07-01	52.1 2019-06-03	▼ -0.4
PMI (svc)	index	55.1 2019-07-03	56.9 2019-06-05	▼ -1.8
Policy rate	%	2.5 2019-07-31	2.5 2019-06-30	→ 0
2s10s slope	pp	0.13 2019-07-31	0.25 2019-06-28	▼ -0.12
Unemployment	%	3.7 2019-07-01	3.6 2019-06-01	→ 0.1
10Y yield	%	2.02 2019-07-31	2 2019-06-28	→ 0.02
2Y yield	%	1.89 2019-07-31	1.75 2019-06-28	▲ 0.14

China

Indicator	Basis	2019-07	2019-06	Change
CPI (YoY)	% YoY	2.7 2019-07-10	2.7 2019-06-12	→ 0
FX vs USD	px	6.88 2019-07-31	6.87 2019-06-28	→ 0.02
GDP	% YoY	6.2 2019-07-15	—	—
PMI (mfg)	index	49.7 2019-07-01	49.4 2019-06-01	→ 0.3
PMI (svc)	index	53.7 2019-07-31	54.2 2019-06-30	▼ -0.5
Policy rate	% (1Y LPR)	4.31 2019-07-31	4.31 2019-06-28	→ 0
2s10s slope	pp	0.4 2019-07-31	0.38 2019-06-28	→ 0.02
Unemployment	%	5.3 2019-07-01	5.1 2019-06-01	▲ 0.2
10Y yield	%	3.16 2019-07-31	3.23 2019-06-28	▼ -0.07
2Y yield	%	2.76 2019-07-31	2.85 2019-06-28	▼ -0.09

Euro area

Indicator	Basis	2019-07	2019-06	Change
CPI (YoY)	% YoY	1.1 2019-07-31	1.2 2019-06-28	→ -0.1
FX vs USD	px	1.12 2019-07-31	1.14 2019-06-28	→ -0.02
GDP	% YoY	0.2 2019-07-17	0.1 2019-06-18	→ 0.1
PMI (mfg)	index	46.4 2019-07-24	47.8 2019-06-21	▼ -1.4
PMI (svc)	index	53.3 2019-07-24	53.4 2019-06-21	→ -0.1
Policy rate	%	0 2019-07-25	0 2019-06-06	→ 0
Unemployment	%	7.5 2019-07-31	7.6 2019-06-04	→ -0.1
10Y yield	%	0.36 2019-07-01	0.57 2019-06-01	▼ -0.22

Japan

Indicator	Basis	2019-07	2019-06	Change
Core CPI	% YoY	0.3 2019-07-19	0.3 2019-06-21	→ 0
CPI (YoY)	% YoY	0.7 2019-07-19	0.7 2019-06-21	→ 0
FX vs USD	px	108.56 2019-07-31	107.75 2019-06-28	▲ 0.81
GDP	% YoY	3.01 2019-07-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2019-07-30	-0.1 2019-06-20	→ 0
Unemployment	%	2.3 2019-07-30	2.4 2019-06-28	→ -0.1
10Y yield	%	-0.16 2019-07-01	-0.17 2019-06-01	→ 0.01

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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

China

disinflationary stall

stall · 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

Euro area

disinflationary stall

contraction · 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

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

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

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 49.4 → 49.7 (+0.3)

Manufacturing PMIPMI — Purchasing Managers' Index. Above 50 = the sector is expanding vs last month; below 50 = contracting. A timely read on activity. is below 50 but rising.
Why: Activity is still contracting in absolute terms (below 50), but the rate of contraction is easing — the second derivative has turned up, which historically clusters near cyclical lows.
Forward-looking investors start to price the trough.
Why: Markets discount the turn before it completes; an improving-but-sub-50 PMI often coincides with the low in cyclical risk assets, well before the PMI itself crosses back above 50.
Early-cycle cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary. and small-caps tend to lead off the low; defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows.' relative edge fades.
Why: The names most beaten down in the contraction have the most operating leverage to even a marginal improvement, so they re-rate first when the deterioration stops.

Helps
early-cycle cyclicalssmall-capsEM equity

Hurts
defensives (relative)long government bonds (if the recovery firms)

Caveat: A one-month uptick that doesn't persist is a head-fake; the turn needs follow-through, and a sub-50 level still means activity is contracting in absolute terms — this is an inflection signal, not an all-clear.

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

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.5 → 0.3 (-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)	1.83	1.80	+0.03 ▬	2019-07-01
Core CPI	0.21	0.10	+0.11 ▲	2019-07-01
Core PCE	1.64	1.60	+0.04 ▬	2019-07-01
Policy rate	2.50	2.50	+0.00 ▬	2019-07-07
GDP	4.80	3.10	+1.70 ▲	2019-07-01
PMI (mfg)	51.70	52.10	-0.40 ▼	2019-07-01
PMI (svc)	55.10	56.90	-1.80 ▼	2019-07-03
Unemployment	3.70	3.70	+0.00 ▬	2019-07-05
10Y yield	2.04	1.96	+0.08 ▲	2019-07-05
2Y yield	1.87	1.77	+0.10 ▲	2019-07-05
2s10s slope	0.17	0.19	-0.02 ▬	2019-07-05
FX vs USD	97.25	96.77	+0.48 ▬	2019-07-05

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.70	2.50	+0.20 ▲	2019-06-12
Policy rate	4.31	4.31	+0.00 ▬	2019-07-05
GDP	6.40	6.40	+0.00 ▬	2019-04-17
PMI (mfg)	49.70	49.40	+0.30 ▲	2019-07-01
PMI (svc)	54.20	54.30	-0.10 ▬	2019-06-30
Unemployment	5.30	5.10	+0.20 ▲	2019-07-01
10Y yield	3.17	3.15	+0.02 ▬	2019-07-05
2Y yield	2.82	2.81	+0.01 ▬	2019-07-05
2s10s slope	0.35	0.34	+0.01 ▬	2019-07-05
FX vs USD	6.87	6.88	-0.01 ▬	2019-07-05

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.20	1.20	+0.00 ▬	2019-06-28
Policy rate	0.00	0.00	+0.00 ▬	2019-06-06
GDP	0.10	0.70	-0.60 ▼	2019-06-18
PMI (mfg)	47.60	47.80	-0.20 ▬	2019-07-01
PMI (svc)	53.60	53.40	+0.20 ▬	2019-07-03
Unemployment	7.50	7.60	-0.10 ▬	2019-07-01
10Y yield	0.36	0.57	-0.22 ▼	2019-07-01
FX vs USD	1.13	1.13	-0.00 ▬	2019-07-05

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.70	0.90	-0.20 ▼	2019-06-21
Core CPI	0.30	0.50	-0.20 ▼	2019-06-21
Policy rate	-0.10	-0.10	+0.00 ▬	2019-06-20
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.40	+0.00 ▬	2019-06-28
10Y yield	-0.16	-0.17	+0.01 ▬	2019-07-01
FX vs USD	107.81	107.78	+0.03 ▬	2019-07-05

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.