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Macro Regime — 2022-W30

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

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↩ Home Macro index ← 2022-07 board

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

Standing macro backdropBORROWED

Borrowed from its month (2022-07); the weekly reads the standing object, it does not recompute the aggregate.

United States: overheating / late-cycle
China: stall-speed, at target
Euro area: overheating / late-cycle
Japan: stall-speed, at target

month aggregated actuals

United States

Indicator	Basis	2022-07	2022-06	Change
Core CPI	% MoM	0.35 2022-07-01	0.68 2022-06-01	▼ -0.33
Core PCE	% YoY	5.11 2022-07-01	5.32 2022-06-01	▼ -0.21
CPI (YoY)	% YoY	8.46 2022-07-01	8.98 2022-06-01	▼ -0.52
FX vs USD	px	105.9 2022-07-29	104.69 2022-06-30	▲ 1.21
GDP	% QoQ ann.	2.9 2022-07-01	—	—
PMI (mfg)	index	53 2022-07-01	56.1 2022-06-01	▼ -3.1
PMI (svc)	index	55.3 2022-07-06	55.9 2022-06-03	▼ -0.6
Policy rate	%	2.5 2022-07-31	1.75 2022-06-30	▲ 0.75
2s10s slope	pp	-0.22 2022-07-29	0.06 2022-06-30	▼ -0.28
Unemployment	%	3.5 2022-07-01	3.6 2022-06-01	→ -0.1
10Y yield	%	2.67 2022-07-29	2.98 2022-06-30	▼ -0.31
2Y yield	%	2.89 2022-07-29	2.92 2022-06-30	→ -0.03

China

Indicator	Basis	2022-07	2022-06	Change
CPI (YoY)	% YoY	2.5 2022-07-09	2.1 2022-06-10	▲ 0.4
FX vs USD	px	6.75 2022-07-29	6.7 2022-06-30	→ 0.05
GDP	% YoY	0.4 2022-07-15	—	—
PMI (mfg)	index	49 2022-07-01	50.2 2022-06-01	▼ -1.2
PMI (svc)	index	53.8 2022-07-31	54.7 2022-06-30	▼ -0.9
Policy rate	% (1Y LPR)	3.7 2022-07-20	3.7 2022-06-20	→ 0
2s10s slope	pp	0.57 2022-07-29	0.52 2022-06-30	▲ 0.05
Unemployment	%	5.4 2022-07-01	5.5 2022-06-01	→ -0.1
10Y yield	%	2.76 2022-07-29	2.82 2022-06-30	▼ -0.06
2Y yield	%	2.19 2022-07-29	2.3 2022-06-30	▼ -0.12

Euro area

Indicator	Basis	2022-07	2022-06	Change
CPI (YoY)	% YoY	8.9 2022-07-29	8.1 2022-06-17	▲ 0.8
FX vs USD	px	1.02 2022-07-29	1.04 2022-06-30	→ -0.03
GDP	% YoY	0.1 2022-07-29	0.8 2022-06-17	▼ -0.7
PMI (mfg)	index	49.6 2022-07-22	52 2022-06-23	▼ -2.4
PMI (svc)	index	50.6 2022-07-22	52.8 2022-06-23	▼ -2.2
Policy rate	%	0.5 2022-07-21	0 2022-06-09	▲ 0.5
Unemployment	%	not recorded
10Y yield	%	2.09 2022-07-01	2.44 2022-06-01	▼ -0.35

Japan

Indicator	Basis	2022-07	2022-06	Change
Core CPI	% YoY	0.2 2022-07-22	0.2 2022-06-24	→ 0
CPI (YoY)	% YoY	2.4 2022-07-22	2.5 2022-06-24	→ -0.1
FX vs USD	px	134.4 2022-07-29	136.59 2022-06-30	▼ -2.19
GDP	% YoY	-0.48 2022-07-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2022-07-21	-0.1 2022-06-17	→ 0
Unemployment	%	2.6 2022-07-29	—	—
10Y yield	%	0.18 2022-07-01	0.23 2022-06-01	→ -0.04

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

overheating / late-cycle

expansion · above target · on hold

Above-trend growth with above-target inflation. Late-cycle: cyclicals and inflation beneficiaries can still run, but the central bank is biased to tighten, so duration and high-multiple growth are exposed.

● 2 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

overheating / late-cycle

stall · above target · tightening

● 2 active

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

M1Inflation surprise (upside)

Trigger: core_cpi: 0.35 → 0.7 (+0.35)

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).

M10Yield-curve inversion (2s10s < 0)

Trigger: slope_2s10s: -0.17 → -0.22 (-0.05)

The 10-year yield falls below the 2-year (2s10s2s10s — 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. inverts).
Why: Normally longer bonds yield more; inversion means the market expects policy ratespolicy 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. to be lower in the future than now — i.e. it expects cuts, usually because growth is set to weaken.
Bank lending margins compress.
Why: Banks borrow short and lend long; when long rates sit below short rates, the spread they earn (net interest marginnet 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.) is squeezed, discouraging lending.
Capital rotates toward defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows. and durationduration — 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. as the cycle turns.
Why: An inverted curve is a historically reliable late-cycle warning, so investors position ahead of a slowdown — favoring steady-demand defensives and long bonds that rally when cuts arrive.

Helps
long-duration bonds (as the turn approaches)defensivesquality

Hurts
banks (margin compression)cyclicalssmall-caps

Caveat: Inversion has long and variable lead times to any actual downturn; it's a regime warning, not a timing signal, and can persist for months while risk assets keep rising.

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

China

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 50.2 → 49 (-1.2)

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 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.
Cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary., 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

M4Monetary tightening (rate hike)

Trigger: policy_rate: 0 → 0.5 (+0.5)

The central bank raises its policy rate.
Why: It lifts the risk-free baseline and signals an intent to drain liquidity to cool demand or inflation.
Discount rates rise; the most rate-sensitive assets are hit first.
Why: A higher risk-free rate lowers the present value of future cash flows, and long-duration growth, long bonds, and non-yielding gold have the most distant or rate-sensitive payoffs.
The currency firms; exporters and dollar-debt EM borrowers are pressured.
Why: A wider yield advantage pulls in capital and strengthens the currency, which hurts exporters' competitiveness and raises the real burden on dollar-denominated EM debt.

Helps
the tightening currencycash/short-duration real yieldbanks (early-cycle)

Hurts
long-duration growth equitieslong-dated bondsgoldEM assets

Caveat: Late in a hiking cycle, a hike can paradoxically rally bonds if the market reads it as the last one and pulls forward the eventual cuts.

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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 52.1 → 49.6 (-2.5)

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).

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)	9.10	8.46	+0.64 ▲	2022-07-13
Core CPI	0.70	0.35	+0.35 ▲	2022-07-13
Core PCE	4.80	5.11	-0.31 ▼	2022-07-29
Policy rate	2.50	2.50	+0.00 ▬	2022-07-31
GDP	-0.90	2.90	-3.80 ▼	2022-07-28
PMI (mfg)	53.00	56.10	-3.10 ▼	2022-07-01
PMI (svc)	55.30	55.90	-0.60 ▼	2022-07-06
Unemployment	3.60	3.50	+0.10 ▲	2022-07-08
10Y yield	2.67	2.68	-0.01 ▬	2022-07-29
2Y yield	2.89	2.85	+0.04 ▬	2022-07-29
2s10s slope	-0.22	-0.17	-0.05 ▬	2022-07-29
FX vs USD	105.90	106.35	-0.45 ▬	2022-07-29

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	2.10	+0.40 ▲	2022-07-09
Policy rate	3.70	3.70	+0.00 ▬	2022-07-20
GDP	0.40	4.80	-4.40 ▼	2022-07-15
PMI (mfg)	49.00	50.20	-1.20 ▼	2022-07-01
PMI (svc)	53.80	54.70	-0.90 ▼	2022-07-31
Unemployment	5.40	5.50	-0.10 ▬	2022-07-01
10Y yield	2.76	2.79	-0.03 ▬	2022-07-29
2Y yield	2.19	2.24	-0.05 ▬	2022-07-29
2s10s slope	0.57	0.55	+0.02 ▬	2022-07-29
FX vs USD	6.75	6.76	-0.01 ▬	2022-07-29

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	8.90	8.60	+0.30 ▲	2022-07-29
Policy rate	0.50	0.00	+0.50 ▲	2022-07-21
GDP	0.10	0.80	-0.70 ▼	2022-07-29
PMI (mfg)	49.60	52.10	-2.50 ▼	2022-07-22
PMI (svc)	50.60	53.00	-2.40 ▼	2022-07-22
Unemployment	6.60	6.80	-0.20 ▼	2022-06-30
10Y yield	2.09	2.44	-0.35 ▼	2022-07-01 ⚠⚠
FX vs USD	1.02	1.02	-0.00 ▬	2022-07-29

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.50	-0.10 ▼	2022-07-22
Core CPI	0.20	0.20	+0.00 ▬	2022-07-22
Policy rate	-0.10	-0.10	+0.00 ▬	2022-07-21
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.60	2.60	+0.00 ▬	2022-07-29
10Y yield	0.18	0.23	-0.04 ▬	2022-07-01 ⚠⚠
FX vs USD	134.40	136.11	-1.71 ▼	2022-07-29

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.