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Macro Regime — 2022-W37

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

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↩ Home Macro index ← 2022-09 board

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

Standing macro backdropBORROWED

Borrowed from its month (2022-09); 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: overheating / late-cycle

month aggregated actuals

United States

Indicator	Basis	2022-09	2022-08	Change
Core CPI	% MoM	0.57 2022-09-01	0.49 2022-08-01	→ 0.08
Core PCE	% YoY	5.61 2022-09-01	5.36 2022-08-01	▲ 0.25
CPI (YoY)	% YoY	8.19 2022-09-01	8.22 2022-08-01	→ -0.03
FX vs USD	px	112.12 2022-09-30	108.7 2022-08-31	▲ 3.42
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	52.8 2022-09-01	52.8 2022-08-01	→ 0
PMI (svc)	index	56.9 2022-09-06	56.7 2022-08-03	→ 0.2
Policy rate	%	3.25 2022-09-30	2.5 2022-08-31	▲ 0.75
2s10s slope	pp	-0.39 2022-09-30	-0.3 2022-08-31	▼ -0.09
Unemployment	%	3.5 2022-09-01	3.6 2022-08-01	→ -0.1
10Y yield	%	3.83 2022-09-30	3.15 2022-08-31	▲ 0.68
2Y yield	%	4.22 2022-09-30	3.45 2022-08-31	▲ 0.77

China

Indicator	Basis	2022-09	2022-08	Change
CPI (YoY)	% YoY	2.5 2022-09-09	2.7 2022-08-10	▼ -0.2
FX vs USD	px	7.12 2022-09-30	6.91 2022-08-31	→ 0.21
GDP	% YoY	not recorded
PMI (mfg)	index	50.1 2022-09-01	49.4 2022-08-01	▲ 0.7
PMI (svc)	index	50.6 2022-09-30	52.6 2022-08-31	▼ -2
Policy rate	% (1Y LPR)	3.65 2022-09-20	3.65 2022-08-22	→ 0
2s10s slope	pp	0.62 2022-09-30	0.53 2022-08-31	▲ 0.1
Unemployment	%	5.5 2022-09-01	5.3 2022-08-01	▲ 0.2
10Y yield	%	2.76 2022-09-30	2.62 2022-08-31	▲ 0.14
2Y yield	%	2.14 2022-09-30	2.1 2022-08-31	→ 0.04

Euro area

Indicator	Basis	2022-09	2022-08	Change
CPI (YoY)	% YoY	10 2022-09-30	9.1 2022-08-31	▲ 0.9
FX vs USD	px	0.98 2022-09-30	1 2022-08-31	→ -0.02
GDP	% YoY	1.2 2022-09-30	0.5 2022-08-31	▲ 0.7
PMI (mfg)	index	48.5 2022-09-23	49.7 2022-08-23	▼ -1.2
PMI (svc)	index	48.9 2022-09-23	50.2 2022-08-23	▼ -1.3
Policy rate	%	1.25 2022-09-08	—	—
Unemployment	%	6.6 2022-09-30	6.6 2022-08-01	→ 0
10Y yield	%	2.81 2022-09-01	2.06 2022-08-01	▲ 0.76

Japan

Indicator	Basis	2022-09	2022-08	Change
Core CPI	% YoY	0.7 2022-09-20	0.4 2022-08-19	▲ 0.3
CPI (YoY)	% YoY	3 2022-09-20	2.6 2022-08-19	▲ 0.4
FX vs USD	px	144.43 2022-09-30	138.73 2022-08-31	▲ 5.7
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2022-09-22	—	—
Unemployment	%	2.5 2022-09-30	2.6 2022-08-30	→ -0.1
10Y yield	%	0.24 2022-09-01	0.22 2022-08-01	→ 0.02

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.

● 1 active

China

stall-speed, at target

stall · at target · easing

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.

● 3 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.

● 1 active

Mechanisms & channelsL2

United States

M10Yield-curve inversion (2s10s < 0)

Trigger: slope_2s10s: -0.42 → -0.4 (+0.02)

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).

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

M3Monetary easing (rate cut)

Trigger: policy_rate: 3.7 → 3.65 (-0.05)

The central bank cuts its policy rate.
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount ratesdiscount 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. fall across asset classes and liquidity expectations rise.
Why: A lower risk-free rate raises the present value of future cash flows everywhere, and a cut signals the bank will keep conditions loose.
Risk assets re-rate up; the currency softens.
Why: Cheaper money flows toward higher-returning assets, and a lower local rate narrows the yield advantage of holding the currency, so it weakens.
The weaker currency lifts exporters, commodities, gold, and EM.
Why: Commodities priced in the easing currency rise in that currency; exporters gain competitiveness; and EM borrowers with dollar debt benefit as the dollar softens.

Helps
equities (broadly)goldEM assetslong-duration bondscommodities

Hurts
the easing currencycash/money-market real yield

Caveat: If the cut is an emergency response to a fast-deteriorating outlook ('cutting into a recession'), equities can fall even as bonds rally — the growth signal outweighs the liquidity boost.

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 49.4 → 50.1 (+0.7)

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; defensives 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).

M11China credit impulse (easing proxy)

Trigger: policy_rate: 3.7 → 3.65 (-0.05)

China cuts its benchmark lending rate (LPR).
Why: A lower LPR reduces borrowing costs and is the most visible signal that policymakers want credit to flow — a proxy for a turn-up in the credit impulsecredit 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..
The flow of new credit into the economy turns up.
Why: Cheaper credit pulls forward borrowing by firms and local governments, raising the change in outstanding credit — the impulse — which leads activity by one to three quarters.
Industrial commodities, China/HK cyclicals, and the EM/commodity-exporter complex benefit.
Why: China is the marginal buyer of many industrial commodities, so a credit-driven activity pickup lifts their prices and the equities and exporter currencies geared to that demand.

Helps
industrial commoditiesChina/HK cyclicalsEM equitycommodity exporters (AUD, BRL)

Hurts
CNY (on the rate cut)China government bond yields (fall)

Caveat: LPR is only a proxy; the true impulse needs total-social-financing / new-loan data (a Rung-2 addition). A cut without a pickup in actual credit demand ('pushing on a string') doesn't deliver the transmission.

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

Euro area

M4Monetary tightening (rate hike)

Trigger: policy_rate: 0.5 → 1.25 (+0.75)

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).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 2.05655 → 2.8138 (+0.757247)

⚠ Fired on a stale print: yield_10y as of 2022-09-01 (17d old). The change may predate current conditions — treat as provisional.

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yieldreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

Caveat: Granularity is daily, so a single-session jump can be noise; a sustained multi-session move is the real signal. Distinguish a growth-driven rise (risk-on) from a supply/term-premium rise (risk-off).

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

Japan

M1Inflation surprise (upside)

Trigger: core_cpi: 0.2 → 0.4 (+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 yields 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 rate 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)	8.30	8.19	+0.11 ▲	2022-09-13
Core CPI	0.60	0.57	+0.03 ▬	2022-09-13
Core PCE	5.61	4.60	+1.01 ▲	2022-09-01
Policy rate	2.50	2.50	+0.00 ▬	2022-09-18
GDP	-0.60	-0.90	+0.30 ▲	2022-08-25
PMI (mfg)	52.80	52.80	+0.00 ▬	2022-09-01
PMI (svc)	56.90	56.70	+0.20 ▬	2022-09-06
Unemployment	3.70	3.50	+0.20 ▲	2022-09-02
10Y yield	3.45	3.45	+0.00 ▬	2022-09-16
2Y yield	3.85	3.87	-0.02 ▬	2022-09-16
2s10s slope	-0.40	-0.42	+0.02 ▬	2022-09-16
FX vs USD	109.76	109.74	+0.02 ▬	2022-09-16

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	2.70	-0.20 ▼	2022-09-09
Policy rate	3.65	3.70	-0.05 ▼	2022-08-22
GDP	0.40	4.80	-4.40 ▼	2022-07-15
PMI (mfg)	50.10	49.40	+0.70 ▲	2022-09-01
PMI (svc)	52.60	53.80	-1.20 ▼	2022-08-31
Unemployment	5.50	5.30	+0.20 ▲	2022-09-01
10Y yield	2.67	2.66	+0.01 ▬	2022-09-16
2Y yield	2.11	2.09	+0.02 ▬	2022-09-16
2s10s slope	0.56	0.57	-0.01 ▬	2022-09-16
FX vs USD	6.99	6.96	+0.03 ▬	2022-09-16

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	9.10	9.10	+0.00 ▬	2022-09-16
Policy rate	1.25	0.50	+0.75 ▲	2022-09-08
GDP	0.60	0.50	+0.10 ▬	2022-09-16
PMI (mfg)	49.60	49.70	-0.10 ▬	2022-09-01
PMI (svc)	49.80	50.20	-0.40 ▼	2022-09-05
Unemployment	6.60	6.60	+0.00 ▬	2022-09-01
10Y yield	2.81	2.06	+0.76 ▲	2022-09-01 ⚠⚠
FX vs USD	1.00	1.00	+0.00 ▬	2022-09-16

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.60	2.40	+0.20 ▲	2022-08-19
Core CPI	0.40	0.20	+0.20 ▲	2022-08-19
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 ▬	2022-08-30
10Y yield	0.24	0.22	+0.02 ▬	2022-09-01 ⚠⚠
FX vs USD	143.37	142.92	+0.44 ▬	2022-09-16

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.