Block G · Macro & business cycle
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Macro data move markets through two channels; expectations about rates and about earnings; what matters is rarely the number itself but the deviation from consensus.
79 · GDP & growth
Total value of goods/services produced; quarterly data, revised multiple times.
Locating the position in the cycle; framework for earnings growth.
Markets run ahead of GDP; the number usually only confirms.
Putting too much weight on revisable first estimates.
80 · Inflation (CPI, HICP, PCE, core inflation)
Rate of price increase of a basket of goods; core rate excluding energy/food; the Fed steers on PCE, the ECB on HICP.
The single most important driver of rate expectations.
Surprises move bonds and equities strongly; base effects distort annual rates.
Reading the headline rate instead of the core rate and monthly dynamics (annualized 3M rate).
22 · Inflation-linked bonds (linkers) · 90 · Policy rates & rate decisions
81 · Labor market (NFP, unemployment rate, wages)
Monthly US nonfarm payrolls as the global lead number; wage growth as an early inflation indicator.
Business cycle and rates signal at the same time.
Strong market reaction; prone to revision.
Overlooking "good news is bad news" phases; a strong labor market can stoke rate fears.
82 · Purchasing managers' indices (PMI/ISM)
Survey-based leading indicators; >50 expansion, <50 contraction.
The earliest broad business cycle signal (monthly, hardly revised).
Good leading properties; sentiment, not hard data.
Interpreting the level instead of direction/dynamics.
83 · ifo & ZEW
German sentiment indicators; ifo (companies, broad), ZEW (financial analysts, earlier but more volatile).
Business cycle picture for Germany/the euro area.
The ifo expectations component with a good lead; ZEW prone to swings.
Over-interpreting single monthly readings; read trends from 3+ months.
84 · Consumer sentiment & retail sales
Consumer confidence (GfK, Michigan) and real retail sales.
Consumption is the largest GDP block; a demand signal.
Sentiment and actual buying behavior often diverge.
Equating sentiment indices with sales data.
85 · Industrial production & new orders
Hard production data and their leading indicator, new orders.
The industrial cycle, above all for export-heavy markets (DAX).
Order data volatile (large orders).
Celebrating a large-order outlier as a trend reversal.
86 · Housing market indicators
Building permits, housing starts, price indices (Case-Shiller), mortgage rates.
The most rate-sensitive sector; an early indicator of monetary policy transmission.
Long transmission chains; regionally heterogeneous.
Reading price indices as real-time data; they lag by months.
87 · Trade & current account balance
A country's goods/services balances; the current account including income flows.
Structural currency assessment; vulnerability of EM countries (deficits).
Relevant over the long term, hardly market-moving short term.
Automatically rating a deficit as weakness; structure counts (USA vs. fragile EMs).
88 · Government debt & deficits
Debt stock and new borrowing relative to GDP.
Credit assessment of sovereigns; supply pressure in the bond market (issuance volume).
Sustainability hinges on the rate-growth differential, not on a fixed ratio.
Viewing one debt ratio (e.g. 100%) as a universal danger threshold; Japan vs. Argentina.
89 · Money supply & lending
M1-M3 and bank credit growth as monetary indicators.
An early indicator of demand and, over the medium term, inflation; the ECB Bank Lending Survey as a complement.
The link to inflation has become unstable.
A mechanical money supply-inflation equation.
90 · Policy rates & rate decisions
Central bank steering rates (Fed funds, ECB deposit rate) and the decision dates.
The anchor of all valuations; a calendar for volatility.
What matters is the surprise relative to market expectations, not the step itself.
Confusing one's own rate outlook with the path already priced in; check WIRP first.
91 · Yield curve (normal/flat/inverted) · 92 · Central bank policy (QE/QT, forward guidance) · 93 · Fed / ECB / BoJ / BoE compared
91 · Yield curve (normal/flat/inverted)
Yields by maturity; normally upward-sloping, inverted = short above long.
A business cycle signal (inversion as a recession indicator), a positioning framework (steepener/flattener).
Historically a good but slow indicator with variable lead time.
Using the inversion as a timing signal; the lead to recession has varied between months and years.
92 · Central bank policy (QE/QT, forward guidance) · 94 · Business cycles & recession indicators · 13 · Government bonds (Bund, Treasuries)
92 · Central bank policy (QE/QT, forward guidance)
Unconventional instruments; bond purchases (QE), balance sheet run-off (QT), verbal steering (guidance).
Understanding liquidity and term premium effects on all assets.
QE supported valuations broadly; QT works creepingly and is hard to dose.
Ignoring balance sheet policy and looking only at policy rates.
90 · Policy rates & rate decisions · 91 · Yield curve (normal/flat/inverted)
93 · Fed / ECB / BoJ / BoE compared
Different mandates (Fed: dual, ECB: price stability), cycles and communication styles.
Rate differentials = FX drivers; global liquidity as the sum of the large balance sheets.
Divergence phases create trends (carry, FX).
Modeling ECB policy as a delayed copy of the Fed.
94 · Business cycles & recession indicators
The sequence expansion-boom-downturn-recession; indicators: curve inversion, Sahm rule, leading indicators, credit spreads.
A traffic light system for the risk allocation and sector rotation.
No single indicator is reliable; the overall picture counts; cycles vary in length.
Calling the recession when one indicator triggers; and missing the equity market recovery, which begins before its end.
91 · Yield curve (normal/flat/inverted) · 37 · Cyclicals vs. defensives