Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W01

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US · China · EU · Japan · mechanism-first, taught

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↩ Home Macro index ← 2020-01 board

⚠ 0 very-stale + 1 stale series across the four blocs — flagged inline.

Standing macro backdropBORROWED

Borrowed from its month (2020-01); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2020-01	2019-12	Change
Core CPI	% MoM	0.26 2020-01-01	0.18 2019-12-01	→ 0.08
Core PCE	% YoY	1.59 2020-01-01	1.54 2019-12-01	→ 0.05
CPI (YoY)	% YoY	2.6 2020-01-01	2.32 2019-12-01	▲ 0.28
FX vs USD	px	97.39 2020-01-31	96.39 2019-12-31	▲ 1
GDP	% QoQ ann.	-5.2 2020-01-01	—	—
PMI (mfg)	index	47.2 2020-01-03	48.1 2019-12-02	▼ -0.9
PMI (svc)	index	55 2020-01-07	53.9 2019-12-04	▲ 1.1
Policy rate	%	1.75 2020-01-31	1.75 2019-12-31	→ 0
2s10s slope	pp	0.18 2020-01-31	0.34 2019-12-31	▼ -0.16
Unemployment	%	3.6 2020-01-01	3.6 2019-12-01	→ 0
10Y yield	%	1.51 2020-01-31	1.92 2019-12-31	▼ -0.41
2Y yield	%	1.33 2020-01-31	1.58 2019-12-31	▼ -0.25

China

Indicator	Basis	2020-01	2019-12	Change
CPI (YoY)	% YoY	4.5 2020-01-09	4.5 2019-12-10	→ 0
FX vs USD	px	6.94 2020-01-31	6.99 2019-12-31	→ -0.05
GDP	% YoY	6 2020-01-17	—	—
PMI (mfg)	index	50 2020-01-01	50.2 2019-12-01	→ -0.2
PMI (svc)	index	54.1 2020-01-31	53.5 2019-12-31	▲ 0.6
Policy rate	% (1Y LPR)	4.15 2020-01-20	4.15 2019-12-20	→ 0
2s10s slope	pp	0.51 2020-01-23	0.66 2019-12-31	▼ -0.14
Unemployment	%	5.3 2020-01-01	5.2 2019-12-01	→ 0.1
10Y yield	%	2.99 2020-01-23	3.14 2019-12-31	▼ -0.14
2Y yield	%	2.48 2020-01-23	2.48 2019-12-31	→ 0

Euro area

Indicator	Basis	2020-01	2019-12	Change
CPI (YoY)	% YoY	1.4 2020-01-31	1 2019-12-18	▲ 0.4
FX vs USD	px	1.1 2020-01-31	1.12 2019-12-31	→ -0.02
GDP	% YoY	0.3 2020-01-17	-0.3 2019-12-18	▲ 0.6
PMI (mfg)	index	47.8 2020-01-24	45.9 2019-12-16	▲ 1.9
PMI (svc)	index	52.2 2020-01-24	52.4 2019-12-16	→ -0.2
Policy rate	%	0 2020-01-23	0 2019-12-12	→ 0
Unemployment	%	7.4 2020-01-30	—	—
10Y yield	%	0.32 2020-01-01	0.37 2019-12-01	▼ -0.05

Japan

Indicator	Basis	2020-01	2019-12	Change
Core CPI	% YoY	0.5 2020-01-24	0.5 2019-12-20	→ 0
CPI (YoY)	% YoY	0.8 2020-01-24	0.5 2019-12-20	▲ 0.3
FX vs USD	px	108.88 2020-01-31	108.87 2019-12-31	→ 0
GDP	% YoY	-0.29 2020-01-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-01-21	—	—
Unemployment	%	2.2 2020-01-31	2.2 2019-12-27	→ 0
10Y yield	%	-0.07 2020-01-01	-0.03 2019-12-01	→ -0.04

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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

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 ⚠ stale

disinflationary stall

unknown · 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

Mechanisms & channelsL2

United States

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 48.1 → 47.2 (-0.9)

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).

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 → 46.3 (+0.4)

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).

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

M1Inflation surprise (upside)

Trigger: core_cpi: 0.3 → 0.5 (+0.2)

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).

What would change the read

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.
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.

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.60	2.10	+0.50 ▲	2020-01-01
Core CPI	0.26	0.20	+0.06 ▬	2020-01-01
Core PCE	1.59	1.60	-0.01 ▬	2020-01-01
Policy rate	1.75	1.75	+0.00 ▬	2020-01-05
GDP	-5.20	2.10	-7.30 ▼	2020-01-01
PMI (mfg)	47.20	48.10	-0.90 ▼	2020-01-03
PMI (svc)	53.90	54.70	-0.80 ▼	2019-12-04
Unemployment	3.60	3.50	+0.10 ▲	2020-01-01
10Y yield	1.80	1.88	-0.08 ▼	2020-01-03
2Y yield	1.53	1.58	-0.05 ▼	2020-01-03
2s10s slope	0.27	0.30	-0.03 ▬	2020-01-03
FX vs USD	96.84	96.85	-0.01 ▬	2020-01-03

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	4.50	3.80	+0.70 ▲	2019-12-10
Policy rate	4.15	4.15	+0.00 ▬	2019-12-20
GDP	6.00	6.20	-0.20 ▼	2019-10-18
PMI (mfg)	50.00	50.20	-0.20 ▬	2020-01-01
PMI (svc)	53.50	54.40	-0.90 ▼	2019-12-31
Unemployment	5.30	5.20	+0.10 ▬	2020-01-01
10Y yield	3.14	3.15	-0.01 ▬	2020-01-03
2Y yield	2.54	2.53	+0.01 ▬	2020-01-03
2s10s slope	0.61	0.62	-0.01 ▬	2020-01-03
FX vs USD	6.96	6.96	+0.00 ▬	2020-01-03

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.00	1.00	+0.00 ▬	2019-12-18
Policy rate	0.00	0.00	+0.00 ▬	2019-12-12
GDP	-0.30	0.10	-0.40 ▼	2019-12-18
PMI (mfg)	46.30	45.90	+0.40 ▲	2020-01-02
PMI (svc)	52.40	51.90	+0.50 ▲	2019-12-16
Unemployment	7.50	7.50	+0.00 ▬	2019-11-29
10Y yield	0.32	0.37	-0.05 ▼	2020-01-01
FX vs USD	1.12	1.12	-0.00 ▬	2020-01-03

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.50	0.20	+0.30 ▲	2019-12-20
Core CPI	0.50	0.30	+0.20 ▲	2019-12-20
Policy rate	-0.10	-0.10	+0.00 ▬	2019-10-31 ⚠
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.20	2.40	-0.20 ▼	2019-12-27
10Y yield	-0.07	-0.03	-0.04 ▬	2020-01-01
FX vs USD	108.54	108.71	-0.17 ▬	2020-01-03

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.