Macro Intelligence · Weekly · deep read
←

Macro Regime — 2020-W04

→

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

Read at: thesis narrative mechanism data
↩ HomeMacro index← 2020-01 board
⚠ 2 very-stale + 0 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.

month aggregated actuals

United States

IndicatorBasis2020-012019-12Change
Core CPI% MoM0.26 2020-01-010.18 2019-12-01→ 0.08
Core PCE% YoY1.59 2020-01-011.54 2019-12-01→ 0.05
CPI (YoY)% YoY2.6 2020-01-012.32 2019-12-01▲ 0.28
FX vs USDpx97.39 2020-01-3196.39 2019-12-31▲ 1
GDP% QoQ ann.-5.2 2020-01-01——
PMI (mfg)index47.2 2020-01-0348.1 2019-12-02▼ -0.9
PMI (svc)index55 2020-01-0753.9 2019-12-04▲ 1.1
Policy rate%1.75 2020-01-311.75 2019-12-31→ 0
2s10s slopepp0.18 2020-01-310.34 2019-12-31▼ -0.16
Unemployment%3.6 2020-01-013.6 2019-12-01→ 0
10Y yield%1.51 2020-01-311.92 2019-12-31▼ -0.41
2Y yield%1.33 2020-01-311.58 2019-12-31▼ -0.25

China

IndicatorBasis2020-012019-12Change
CPI (YoY)% YoY4.5 2020-01-094.5 2019-12-10→ 0
FX vs USDpx6.94 2020-01-316.99 2019-12-31→ -0.05
GDP% YoY6 2020-01-17——
PMI (mfg)index50 2020-01-0150.2 2019-12-01→ -0.2
PMI (svc)index54.1 2020-01-3153.5 2019-12-31▲ 0.6
Policy rate% (1Y LPR)4.15 2020-01-204.15 2019-12-20→ 0
2s10s slopepp0.51 2020-01-230.66 2019-12-31▼ -0.14
Unemployment%5.3 2020-01-015.2 2019-12-01→ 0.1
10Y yield%2.99 2020-01-233.14 2019-12-31▼ -0.14
2Y yield%2.48 2020-01-232.48 2019-12-31→ 0

Euro area

IndicatorBasis2020-012019-12Change
CPI (YoY)% YoY1.4 2020-01-311 2019-12-18▲ 0.4
FX vs USDpx1.1 2020-01-311.12 2019-12-31→ -0.02
GDP% YoY0.3 2020-01-17-0.3 2019-12-18▲ 0.6
PMI (mfg)index47.8 2020-01-2445.9 2019-12-16▲ 1.9
PMI (svc)index52.2 2020-01-2452.4 2019-12-16→ -0.2
Policy rate%0 2020-01-230 2019-12-12→ 0
Unemployment%7.4 2020-01-30——
10Y yield%0.32 2020-01-010.37 2019-12-01▼ -0.05

Japan

IndicatorBasis2020-012019-12Change
Core CPI% YoY0.5 2020-01-240.5 2019-12-20→ 0
CPI (YoY)% YoY0.8 2020-01-240.5 2019-12-20▲ 0.3
FX vs USDpx108.88 2020-01-31108.87 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 2020-01-312.2 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 ⚠ stale
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
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.
○ no change

Mechanisms & channelsL2

United States

M6Growth slowdown (deepening contraction)
Trigger: pmi_mfg: 48.1 → 47.2 (-0.9)
  1. 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.
  2. 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.
  3. 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

⚠ Stale inputs (latest print is old): 10Y yield. The standing read uses the most recent available release — treat as provisional.
M13Contraction easing (sub-50 PMI, rising)
Trigger: pmi_mfg: 46.3 → 47.8 (+1.5)
  1. 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.
  2. 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.
  3. 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

⚠ Stale inputs (latest print is old): 10Y yield. The standing read uses the most recent available release — treat as provisional.

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

IndicatorCurrentPriorΔAs of
CPI (YoY)2.302.60-0.30 ▼2020-01-14
Core CPI0.100.26-0.16 ▼2020-01-14
Core PCE1.591.60-0.01 ▬2020-01-01
Policy rate1.751.75+0.00 ▬2020-01-26
GDP-5.202.10-7.30 ▼2020-01-01
PMI (mfg)47.2048.10-0.90 ▼2020-01-03
PMI (svc)55.0053.90+1.10 ▲2020-01-07
Unemployment3.503.60-0.10 ▼2020-01-10
10Y yield1.701.74-0.04 ▬2020-01-24
2Y yield1.491.51-0.02 ▬2020-01-24
2s10s slope0.210.23-0.02 ▬2020-01-24
FX vs USD97.8597.69+0.16 ▬2020-01-24

China

IndicatorCurrentPriorΔAs of
CPI (YoY)4.504.50+0.00 ▬2020-01-09
Policy rate4.154.15+0.00 ▬2020-01-20
GDP6.006.00+0.00 ▬2020-01-17
PMI (mfg)50.0050.20-0.20 ▬2020-01-01
PMI (svc)53.5054.40-0.90 ▼2019-12-31
Unemployment5.305.20+0.10 ▬2020-01-01
10Y yield2.993.03-0.04 ▬2020-01-23
2Y yield2.482.48+0.00 ▬2020-01-23
2s10s slope0.510.55-0.04 ▬2020-01-23
FX vs USD6.946.91+0.03 ▬2020-01-24

Euro area

IndicatorCurrentPriorΔAs of
CPI (YoY)1.301.30+0.00 ▬2020-01-17
Policy rate0.000.00+0.00 ▬2020-01-23
GDP0.30-0.30+0.60 ▲2020-01-17
PMI (mfg)47.8046.30+1.50 ▲2020-01-24
PMI (svc)52.2052.80-0.60 ▼2020-01-24
Unemployment7.507.50+0.00 ▬2020-01-09
10Y yield0.320.37-0.05 ▼2020-01-01 ⚠⚠
FX vs USD1.111.11-0.00 ▬2020-01-24

Japan

IndicatorCurrentPriorΔAs of
CPI (YoY)0.800.50+0.30 ▲2020-01-24
Core CPI0.500.50+0.00 ▬2020-01-24
Policy rate-0.10-0.10+0.00 ▬2020-01-21
GDPn/a
PMI (mfg)n/a
Unemployment2.202.40-0.20 ▼2019-12-27
10Y yield-0.07-0.03-0.04 ▬2020-01-01 ⚠⚠
FX vs USD109.55109.73-0.18 ▬2020-01-24

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.