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Macro Regime — 2022-W50

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↩ Home Macro index ← 2022-12 board

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

Standing macro backdropBORROWED

Borrowed from its month (2022-12); the weekly reads the standing object, it does not recompute the aggregate.

United States: overheating / late-cycle
China: disinflationary stall
Euro area: stagflationary
Japan: overheating / late-cycle

month aggregated actuals

United States

Indicator	Basis	2022-12	2022-11	Change
Core CPI	% MoM	0.36 2022-12-01	0.31 2022-11-01	→ 0.05
Core PCE	% YoY	4.97 2022-12-01	5.21 2022-11-01	▼ -0.24
CPI (YoY)	% YoY	6.4 2022-12-01	7.12 2022-11-01	▼ -0.72
FX vs USD	px	103.52 2022-12-30	105.95 2022-11-30	▼ -2.43
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	49 2022-12-01	50.2 2022-11-01	▼ -1.2
PMI (svc)	index	56.5 2022-12-05	54.4 2022-11-03	▲ 2.1
Policy rate	%	4.5 2022-12-31	4 2022-11-30	▲ 0.5
2s10s slope	pp	-0.53 2022-12-30	-0.7 2022-11-30	▲ 0.17
Unemployment	%	3.5 2022-12-01	3.6 2022-11-01	→ -0.1
10Y yield	%	3.88 2022-12-30	3.68 2022-11-30	▲ 0.2
2Y yield	%	4.41 2022-12-30	4.38 2022-11-30	→ 0.03

China

Indicator	Basis	2022-12	2022-11	Change
CPI (YoY)	% YoY	1.6 2022-12-09	2.1 2022-11-09	▼ -0.5
FX vs USD	px	6.96 2022-12-30	7.16 2022-11-30	→ -0.2
GDP	% YoY	not recorded
PMI (mfg)	index	47 2022-12-01	48 2022-11-01	▼ -1
PMI (svc)	index	41.6 2022-12-31	46.7 2022-11-30	▼ -5.1
Policy rate	% (1Y LPR)	3.65 2022-12-20	3.65 2022-11-21	→ 0
2s10s slope	pp	0.48 2022-12-31	0.52 2022-11-30	→ -0.04
Unemployment	%	5.5 2022-12-01	5.7 2022-11-01	▼ -0.2
10Y yield	%	2.84 2022-12-31	2.88 2022-11-30	→ -0.05
2Y yield	%	2.35 2022-12-31	2.36 2022-11-30	→ -0.01

Euro area

Indicator	Basis	2022-12	2022-11	Change
CPI (YoY)	% YoY	10.1 2022-12-16	10 2022-11-30	→ 0.1
FX vs USD	px	1.07 2022-12-30	1.03 2022-11-30	→ 0.03
GDP	% YoY	-0.1 2022-12-16	-0.1 2022-11-30	→ 0
PMI (mfg)	index	47.8 2022-12-16	47.3 2022-11-23	▲ 0.5
PMI (svc)	index	49.1 2022-12-16	48.6 2022-11-23	▲ 0.5
Policy rate	%	2.5 2022-12-15	—	—
Unemployment	%	6.5 2022-12-01	6.6 2022-11-03	→ -0.1
10Y yield	%	3 2022-12-01	2.94 2022-11-01	▲ 0.06

Japan

Indicator	Basis	2022-12	2022-11	Change
Core CPI	% YoY	1.5 2022-12-23	1.5 2022-11-18	→ 0
CPI (YoY)	% YoY	3.8 2022-12-23	3.7 2022-11-18	→ 0.1
FX vs USD	px	132.92 2022-12-30	138.74 2022-11-30	▼ -5.83
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2022-12-20	—	—
Unemployment	%	2.5 2022-12-27	2.6 2022-11-29	→ -0.1
10Y yield	%	0.41 2022-12-01	0.25 2022-11-01	▲ 0.16

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

overheating / late-cycle

stall · 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

disinflationary stall

contraction · at 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 ⚠ stale

stagflationary

contraction · above target · tightening

Contracting activity *and* above-target inflation — the hardest mix: the central bank can't ease freely. Real assets, energy and value tend to hold up better than long-duration growth and bonds.

● 2 active

Japan ⚠ stale

overheating / late-cycle

unknown · above target · on hold

● 2 active

Mechanisms & channelsL2

United States

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 defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows. 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).

M10Yield-curve inversion (2s10s < 0)

Trigger: slope_2s10s: -0.79 → -0.69 (+0.1)

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 defensives 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: 48 → 47 (-1)

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

M4Monetary tightening (rate hike)

Trigger: policy_rate: 2 → 2.5 (+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 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. 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).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 47.1 → 47.8 (+0.7)

Manufacturing PMI 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 cyclicals and small-caps tend to lead off the low; defensives' 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).

Japan

M1Inflation surprise (upside)

Trigger: core_cpi: 0.9 → 1.5 (+0.6)

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 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).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 0.25 → 0.41 (+0.16)

⚠ Fired on a stale print: yield_10y as of 2022-12-01 (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 yield 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).

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	7.10	6.40	+0.70 ▲	2022-12-13
Core CPI	0.20	0.36	-0.16 ▼	2022-12-13
Core PCE	4.97	5.21	-0.24 ▼	2022-12-01
Policy rate	4.50	4.50	+0.00 ▬	2022-12-18
GDP	2.90	2.60	+0.30 ▲	2022-11-30
PMI (mfg)	49.00	50.20	-1.20 ▼	2022-12-01
PMI (svc)	56.50	54.40	+2.10 ▲	2022-12-05
Unemployment	3.70	3.50	+0.20 ▲	2022-12-02
10Y yield	3.48	3.44	+0.04 ▬	2022-12-16
2Y yield	4.17	4.23	-0.06 ▼	2022-12-16
2s10s slope	-0.69	-0.79	+0.10 ▲	2022-12-16
FX vs USD	104.70	104.56	+0.14 ▬	2022-12-16

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.60	2.10	-0.50 ▼	2022-12-09
Policy rate	3.65	3.65	+0.00 ▬	2022-11-21
GDP	3.90	0.40	+3.50 ▲	2022-10-24
PMI (mfg)	47.00	48.00	-1.00 ▼	2022-12-01
PMI (svc)	46.70	48.70	-2.00 ▼	2022-11-30
Unemployment	5.50	5.70	-0.20 ▼	2022-12-01
10Y yield	2.89	2.88	+0.00 ▬	2022-12-16
2Y yield	2.43	2.43	-0.00 ▬	2022-12-16
2s10s slope	0.46	0.45	+0.01 ▬	2022-12-16
FX vs USD	6.97	6.95	+0.02 ▬	2022-12-16

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	10.10	10.00	+0.10 ▬	2022-12-16
Policy rate	2.50	2.00	+0.50 ▲	2022-12-15
GDP	-0.10	-0.10	+0.00 ▬	2022-12-16
PMI (mfg)	47.80	47.10	+0.70 ▲	2022-12-16
PMI (svc)	49.10	48.50	+0.60 ▲	2022-12-16
Unemployment	6.50	6.60	-0.10 ▬	2022-12-01
10Y yield	3.00	2.94	+0.06 ▲	2022-12-01 ⚠⚠
FX vs USD	1.06	1.07	-0.00 ▬	2022-12-16

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.70	3.00	+0.70 ▲	2022-11-18
Core CPI	1.50	0.90	+0.60 ▲	2022-11-18
Policy rate	-0.10	-0.10	+0.00 ▬	2022-10-28
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.60	2.60	+0.00 ▬	2022-11-29
10Y yield	0.41	0.25	+0.16 ▲	2022-12-01 ⚠⚠
FX vs USD	137.75	135.35	+2.40 ▲	2022-12-16

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.