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Macro Regime — 2025-W27

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↩ Home Macro index ← 2025-07 board

Standing macro backdropBORROWED

Borrowed from its month (2025-07); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2025-07	2025-06	Change
Core CPI	% MoM	0.31 2025-07-01	0.23 2025-06-01	→ 0.08
Core PCE	% YoY	2.86 2025-07-01	2.81 2025-06-01	→ 0.05
CPI (YoY)	% YoY	2.74 2025-07-01	2.68 2025-06-01	→ 0.06
FX vs USD	px	100.03 2025-07-31	96.88 2025-06-30	▲ 3.15
GDP	% QoQ ann.	4.4 2025-07-01	—	—
PMI (mfg)	index	49 2025-07-01	48.5 2025-06-02	▲ 0.5
PMI (svc)	index	50.8 2025-07-03	49.9 2025-06-04	▲ 0.9
Policy rate	%	4.5 2025-07-31	4.5 2025-06-30	→ 0
2s10s slope	pp	0.43 2025-07-31	0.52 2025-06-30	▼ -0.09
Unemployment	%	4.3 2025-07-01	4.1 2025-06-01	▲ 0.2
10Y yield	%	4.37 2025-07-31	4.24 2025-06-30	▲ 0.13
2Y yield	%	3.94 2025-07-31	3.72 2025-06-30	▲ 0.22

China

Indicator	Basis	2025-07	2025-06	Change
CPI (YoY)	% YoY	0.1 2025-07-09	-0.1 2025-06-09	▲ 0.2
FX vs USD	px	7.18 2025-07-31	7.17 2025-06-30	→ 0
GDP	% YoY	5.2 2025-07-15	—	—
PMI (mfg)	index	49.3 2025-07-01	49.7 2025-06-01	▼ -0.4
PMI (svc)	index	50.1 2025-07-31	50.5 2025-06-30	▼ -0.4
Policy rate	% (1Y LPR)	3 2025-07-21	3 2025-06-20	→ 0
2s10s slope	pp	0.28 2025-07-31	0.28 2025-06-30	→ 0
Unemployment	%	5.2 2025-07-01	5 2025-06-01	▲ 0.2
10Y yield	%	1.7 2025-07-31	1.65 2025-06-30	▲ 0.06
2Y yield	%	1.42 2025-07-31	1.36 2025-06-30	▲ 0.06

Euro area

Indicator	Basis	2025-07	2025-06	Change
CPI (YoY)	% YoY	2 2025-07-17	1.9 2025-06-18	→ 0.1
FX vs USD	px	1.14 2025-07-31	1.17 2025-06-30	→ -0.03
GDP	% YoY	0.3 2025-07-17	0 2025-06-18	▲ 0.3
PMI (mfg)	index	49.8 2025-07-24	49.4 2025-06-23	▲ 0.4
PMI (svc)	index	51.2 2025-07-24	50 2025-06-23	▲ 1.2
Policy rate	%	2.15 2025-07-24	2.15 2025-06-05	→ 0
Unemployment	%	6.2 2025-07-31	6.2 2025-06-03	→ 0
10Y yield	%	3.17 2025-07-01	3.08 2025-06-01	▲ 0.09

Japan

Indicator	Basis	2025-07	2025-06	Change
Core CPI	% YoY	1.6 2025-07-18	1.6 2025-06-20	→ 0
CPI (YoY)	% YoY	3.3 2025-07-18	3.5 2025-06-20	▼ -0.2
FX vs USD	px	149.23 2025-07-31	144.52 2025-06-30	▲ 4.71
GDP	% YoY	1.41 2025-07-01	—	—
PMI (mfg)		not recorded
Policy rate	%	0.5 2025-07-31	0.5 2025-06-17	→ 0
Unemployment	%	not recorded
10Y yield	%	1.54 2025-07-01	1.42 2025-06-01	▲ 0.12

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

deflation watch

stall · 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.

● 1 active

Euro area

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.

● 1 active

Japan

overheating / late-cycle

unknown · above target · on hold

● 1 active

Mechanisms & channelsL2

United States

M1Inflation surprise (upside)

Trigger: core_cpi: 0.1 → 0.31 (+0.21)

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).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 48.5 → 49 (+0.5)

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).

China

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 49.7 → 49.3 (-0.4)

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

M3Monetary easing (rate cut)

Trigger: policy_rate: 2.4 → 2.15 (-0.25)

The central bank cuts its 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..
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount rates 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).

What would change the read

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.
Growth slowdown (deepening contraction) Manufacturing is not both below 50 and falling, so the deepening-contraction channel is dormant. It fires when a sub-50 PMI turns lower — that is the trigger for the defensive rotation and a bid for duration (a sub-50 PMI that is *rising* is the trough channel, M13, not this one).

Japan

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.42 → 1.545 (+0.125)

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).

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)	2.74	2.40	+0.34 ▲	2025-07-01
Core CPI	0.31	0.10	+0.21 ▲	2025-07-01
Core PCE	2.86	2.70	+0.16 ▲	2025-07-01
Policy rate	4.50	4.50	+0.00 ▬	2025-07-06
GDP	4.40	-0.50	+4.90 ▲	2025-07-01
PMI (mfg)	49.00	48.50	+0.50 ▲	2025-07-01
PMI (svc)	50.80	49.90	+0.90 ▲	2025-07-03
Unemployment	4.10	4.30	-0.20 ▼	2025-07-03
10Y yield	4.35	4.30	+0.05 ▬	2025-07-03
2Y yield	3.88	3.78	+0.10 ▲	2025-07-03
2s10s slope	0.47	0.52	-0.05 ▼	2025-07-03
FX vs USD	97.18	96.78	+0.40 ▬	2025-07-03

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.10	-0.10	+0.00 ▬	2025-06-09
Policy rate	3.00	3.00	+0.00 ▬	2025-06-20
GDP	5.40	5.40	+0.00 ▬	2025-04-16
PMI (mfg)	49.30	49.70	-0.40 ▼	2025-07-01
PMI (svc)	50.50	50.30	+0.20 ▬	2025-06-30
Unemployment	5.20	5.00	+0.20 ▲	2025-07-01
10Y yield	1.64	1.64	+0.00 ▬	2025-07-04
2Y yield	1.35	1.36	-0.01 ▬	2025-07-04
2s10s slope	0.29	0.28	+0.01 ▬	2025-07-04
FX vs USD	7.16	7.16	+0.00 ▬	2025-07-04

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.00	1.90	+0.10 ▲	2025-07-01
Policy rate	2.15	2.40	-0.25 ▼	2025-06-05
GDP	0.30	0.00	+0.30 ▲	2025-07-01
PMI (mfg)	49.50	49.40	+0.10 ▬	2025-07-01
PMI (svc)	50.50	50.00	+0.50 ▲	2025-07-03
Unemployment	6.30	6.20	+0.10 ▬	2025-07-02
10Y yield	3.17	3.08	+0.09 ▲	2025-07-01
FX vs USD	1.18	1.18	-0.00 ▬	2025-07-04

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.50	3.60	-0.10 ▼	2025-06-20
Core CPI	1.60	1.60	+0.00 ▬	2025-06-20
Policy rate	0.50	0.50	+0.00 ▬	2025-06-17
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.50	2.50	+0.00 ▬	2025-06-27
10Y yield	1.54	1.42	+0.12 ▲	2025-07-01
FX vs USD	144.68	143.53	+1.16 ▲	2025-07-04

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.