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Macro Regime — 2019-W48

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Standing macro backdropBORROWED

Borrowed from its month (2019-12); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2019-12	2019-11	Change
Core CPI	% MoM	0.18 2019-12-01	0.22 2019-11-01	→ -0.04
Core PCE	% YoY	1.54 2019-12-01	1.5 2019-11-01	→ 0.04
CPI (YoY)	% YoY	2.32 2019-12-01	2.09 2019-11-01	▲ 0.23
FX vs USD	px	96.39 2019-12-31	98.27 2019-11-29	▼ -1.88
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	48.1 2019-12-02	48.3 2019-11-01	→ -0.2
PMI (svc)	index	53.9 2019-12-04	54.7 2019-11-05	▼ -0.8
Policy rate	%	1.75 2019-12-31	1.75 2019-11-30	→ 0
2s10s slope	pp	0.34 2019-12-31	0.17 2019-11-29	▲ 0.17
Unemployment	%	3.6 2019-12-01	3.6 2019-11-01	→ 0
10Y yield	%	1.92 2019-12-31	1.78 2019-11-29	▲ 0.14
2Y yield	%	1.58 2019-12-31	1.61 2019-11-29	→ -0.03

China

Indicator	Basis	2019-12	2019-11	Change
CPI (YoY)	% YoY	4.5 2019-12-10	3.8 2019-11-09	▲ 0.7
FX vs USD	px	6.99 2019-12-31	7.03 2019-11-29	→ -0.05
GDP	% YoY	not recorded
PMI (mfg)	index	50.2 2019-12-01	50.2 2019-11-01	→ 0
PMI (svc)	index	53.5 2019-12-31	54.4 2019-11-30	▼ -0.9
Policy rate	% (1Y LPR)	4.15 2019-12-20	4.15 2019-11-20	→ 0
2s10s slope	pp	0.66 2019-12-31	0.48 2019-11-29	▲ 0.17
Unemployment	%	5.2 2019-12-01	5.1 2019-11-01	→ 0.1
10Y yield	%	3.14 2019-12-31	3.17 2019-11-29	→ -0.03
2Y yield	%	2.48 2019-12-31	2.68 2019-11-29	▼ -0.2

Euro area

Indicator	Basis	2019-12	2019-11	Change
CPI (YoY)	% YoY	1 2019-12-18	1 2019-11-29	→ 0
FX vs USD	px	1.12 2019-12-31	1.1 2019-11-29	→ 0.02
GDP	% YoY	-0.3 2019-12-18	0.1 2019-11-15	▼ -0.4
PMI (mfg)	index	45.9 2019-12-16	46.6 2019-11-22	▼ -0.7
PMI (svc)	index	52.4 2019-12-16	51.5 2019-11-22	▲ 0.9
Policy rate	%	0 2019-12-12	—	—
Unemployment	%	not recorded
10Y yield	%	0.37 2019-12-01	0.3 2019-11-01	▲ 0.06

Japan

Indicator	Basis	2019-12	2019-11	Change
Core CPI	% YoY	0.5 2019-12-20	0.3 2019-11-22	▲ 0.2
CPI (YoY)	% YoY	0.5 2019-12-20	0.2 2019-11-22	▲ 0.3
FX vs USD	px	108.87 2019-12-31	109.51 2019-11-29	▼ -0.64
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	2.2 2019-12-27	2.4 2019-11-29	▼ -0.2
10Y yield	%	-0.03 2019-12-01	-0.08 2019-11-01	▲ 0.06

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

stall-speed, at target

stall · 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

China

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.

○ no change

Euro area

disinflationary stall

contraction · below 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

Japan

deflation watch

unknown · 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.

○ no change

Mechanisms & channelsL2

United States

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 47.8 → 48.3 (+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).

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

No active mechanism this week — the standing read above carries the bloc.

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

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 45.9 → 46.6 (+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)

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.

Japan

No active mechanism this week — the standing read above carries the bloc.

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)	2.32	1.80	+0.52 ▲	2019-12-01
Core CPI	0.18	0.20	-0.02 ▬	2019-12-01
Core PCE	1.54	1.50	+0.04 ▬	2019-12-01
Policy rate	1.75	1.75	+0.00 ▬	2019-12-01
GDP	2.10	1.90	+0.20 ▲	2019-11-27
PMI (mfg)	48.30	47.80	+0.50 ▲	2019-11-01
PMI (svc)	54.70	52.60	+2.10 ▲	2019-11-05
Unemployment	3.60	3.60	+0.00 ▬	2019-12-01
10Y yield	1.78	1.77	+0.01 ▬	2019-11-29
2Y yield	1.61	1.63	-0.02 ▬	2019-11-29
2s10s slope	0.17	0.14	+0.03 ▬	2019-11-29
FX vs USD	98.27	98.41	-0.14 ▬	2019-11-29

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.80	3.00	+0.80 ▲	2019-11-09
Policy rate	4.15	4.20	-0.05 ▬	2019-11-20
GDP	6.00	6.20	-0.20 ▼	2019-10-18
PMI (mfg)	50.20	50.20	+0.00 ▬	2019-12-01
PMI (svc)	54.40	52.80	+1.60 ▲	2019-11-30
Unemployment	5.20	5.10	+0.10 ▲	2019-12-01
10Y yield	3.17	3.17	+0.00 ▬	2019-11-29
2Y yield	2.68	2.69	-0.01 ▬	2019-11-29
2s10s slope	0.48	0.48	+0.01 ▬	2019-11-29
FX vs USD	7.03	7.03	+0.01 ▬	2019-11-29

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.00	0.70	+0.30 ▲	2019-11-29
Policy rate	0.00	0.00	+0.00 ▬	2019-10-24
GDP	0.10	0.20	-0.10 ▬	2019-11-15
PMI (mfg)	46.60	45.90	+0.70 ▲	2019-11-22
PMI (svc)	51.50	52.20	-0.70 ▼	2019-11-22
Unemployment	7.50	7.50	+0.00 ▬	2019-11-29
10Y yield	0.37	0.30	+0.06 ▲	2019-12-01
FX vs USD	1.10	1.10	+0.00 ▬	2019-11-29

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.20	0.20	+0.00 ▬	2019-11-22
Core CPI	0.30	0.30	+0.00 ▬	2019-11-22
Policy rate	-0.10	-0.10	+0.00 ▬	2019-10-31
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.40	+0.00 ▬	2019-11-29
10Y yield	-0.03	-0.08	+0.06 ▲	2019-12-01
FX vs USD	109.51	109.37	+0.15 ▬	2019-11-29

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.