Firm Expansion with Rising U.S. Inflation and Zero Crisis Signals

The macro backdrop remains in expansion: the Macro Score reads 93/100, with 8 of 9 categories green and only inflation in amber. Classic recession indicators are switched off, but U.S. CPI and PCE are accelerating sharply and are this week's focal point.

0 of 8 flags triggered. All classic recession indicators are switched off:

• Sahm Rule: 0.07 pp (threshold 0.50).
• 10y–3m curve: +71 bp, no inversion.
• Weekly unemployment claims: −7% year-over-year (threshold +15%).
• Mortgage delinquency: +0.12 pp over 1 year (threshold +0.30).
• Corporate credit: +8.0% year-over-year, no contraction.
• Financial conditions (NFCI): −0.52 (threshold 0).
• Housing: permits −0.4% y/y (threshold −10%).
• High-yield credit: 270 bp, z=−1.2, no stress.

U.S. inflation is overheating. CPI rose to 4.3% year-over-year, accelerating +1.6 pp over three months (up from 2.7%). PCE rose to 4.1% year-over-year, accelerating +1.2 pp over three months (from 2.9%). In the eurozone, HICP advanced to 2.8% year-over-year, with a more contained acceleration of +0.2 pp over three months. The divergence is clear: the U.S. is accelerating forcefully, while Europe is moving only marginally.

The U.S. labor market remains solid. The unemployment rate stands at 4.2%, down −0.1 pp over three months, and payrolls added +57,000 in the month. The Sahm Rule shows a gap of 0.07 pp, far from the 0.50 threshold, with a three-month average unemployment rate of 4.3%. Weekly claims average 219,000 (four-week average), −7% versus a year ago. There are no signs of labor market deterioration.

Delinquency trends are mixed but contained. Mortgage delinquency stands at 1.89%, up +0.12 pp over one year; credit card delinquency fell to 2.92% (−0.14 pp); and corporate delinquency rose slightly to 1.34% (+0.05 pp). Corporate credit grows a solid +8.0% year-over-year and consumer credit +2.1% year-over-year. Financial conditions (NFCI) stand at −0.52, i.e., loose and below their historical average. Credit is flowing without restrictions.

Activity holds up with some nuances. Industrial production grows +1.7% year-over-year and retail sales a notable +6.9% year-over-year. Housing, which typically leads the cycle, shows weakness: permits fall −0.4% y/y and housing starts −8.7% y/y. Consumer confidence is the weak spot: 44.8, down −7.4 over one year and in recessionary territory (below 70). Leading manufacturing surveys are positive: Empire State +5.7 (with a +5.9 improvement over three months) and Philly Fed +10.3, both in expansion.

The Fed holds the federal funds rate at 3.62%, unchanged over the last month (−0.02 pp over three months). The ECB raised its deposit rate +25 bp over the last month, to 2.25%. This is a divergent move: while the Fed pauses, the ECB tightens.

The system is gaining liquidity. U.S. net liquidity stands at $5,958 B, up +1.0% over four weeks and +0.2% over thirteen weeks. The Fed's balance sheet stands at $6,736 B and is expanding (+0.6% over thirteen weeks, +1.1% year-over-year), pointing to the end of QT. The Reverse Repo facility is nearly depleted at $0.5 B, leaving no additional cushion. The Treasury General Account (TGA) fell to $774 B (−$54 B over four weeks), injecting liquidity into the system. M2 grows +5.6% year-over-year ($23,052 B). By contrast, external balance sheets are contracting: ECB −2.6% year-over-year and BoJ −10.9% year-over-year. Overall, the U.S. is adding liquidity —a supportive factor for risk assets— while Europe and Japan are draining it.

Risk appetite is broad-based. The sector rotation signal (French data through 2026-05-29, with a several-week lag) shows defensives lagging the market by −14.4 pp over three months and −4.7 pp over the last month, a signal of rotation into risk. The Dow/Nasdaq proxy, more up to date (through 2026-07-10), shows −5.1 pp over three months but +1.1 pp over the last month, a nuance of recent stabilization. Overall, defensives are not leading, consistent with a market that has an appetite for risk.

The overall dataset points to expansion, with a Macro Score of 93/100 and zero crisis flags triggered. Employment, credit, activity, liquidity, and equities are all green. The point to watch is U.S. inflation, which is accelerating sharply (CPI 4.3%, PCE 4.1%) and contrasts with a Fed on pause and an ECB that is tightening. Mixed signals appear in housing (housing starts −8.7% y/y, though permits are barely slipping) and in consumer confidence (44.8, in recessionary territory), which clash with robust retail sales and expanding manufacturing surveys. In short: an expansionary cycle with rising inflationary pressure as the main imbalance, with no signs of imminent recession in the indicators presented.