Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W06

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2020-02 board

⚠ 0 very-stale + 2 stale series across the four blocs — flagged inline.

Standing macro backdropBORROWED

Borrowed from its month (2020-02); the weekly reads the standing object, it does not recompute the aggregate.

United States: stall-speed, at target
China: stagflationary
Euro area: stall-speed, at target
Japan: disinflationary stall

month aggregated actuals

United States

Indicator	Basis	2020-02	2020-01	Change
Core CPI	% MoM	0.25 2020-02-01	0.26 2020-01-01	→ -0.01
Core PCE	% YoY	1.7 2020-02-01	1.59 2020-01-01	▲ 0.11
CPI (YoY)	% YoY	2.34 2020-02-01	2.6 2020-01-01	▼ -0.26
FX vs USD	px	98.13 2020-02-28	97.39 2020-01-31	▲ 0.74
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	50.9 2020-02-03	47.2 2020-01-03	▲ 3.7
PMI (svc)	index	55.5 2020-02-05	55 2020-01-07	▲ 0.5
Policy rate	%	1.75 2020-02-29	1.75 2020-01-31	→ 0
2s10s slope	pp	0.27 2020-02-28	0.18 2020-01-31	▲ 0.09
Unemployment	%	3.5 2020-02-01	3.6 2020-01-01	→ -0.1
10Y yield	%	1.13 2020-02-28	1.51 2020-01-31	▼ -0.38
2Y yield	%	0.86 2020-02-28	1.33 2020-01-31	▼ -0.47

China

Indicator	Basis	2020-02	2020-01	Change
CPI (YoY)	% YoY	5.4 2020-02-10	4.5 2020-01-09	▲ 0.9
FX vs USD	px	7 2020-02-28	6.94 2020-01-31	→ 0.07
GDP	% YoY	not recorded
PMI (mfg)	index	35.7 2020-02-01	50 2020-01-01	▼ -14.3
PMI (svc)	index	29.6 2020-02-29	54.1 2020-01-31	▼ -24.5
Policy rate	% (1Y LPR)	4.05 2020-02-20	4.15 2020-01-20	▼ -0.1
2s10s slope	pp	0.48 2020-02-28	0.51 2020-01-23	→ -0.03
Unemployment	%	6.2 2020-02-01	5.3 2020-01-01	▲ 0.9
10Y yield	%	2.74 2020-02-28	2.99 2020-01-23	▼ -0.26
2Y yield	%	2.25 2020-02-28	2.48 2020-01-23	▼ -0.22

Euro area

Indicator	Basis	2020-02	2020-01	Change
CPI (YoY)	% YoY	1.4 2020-02-21	1.4 2020-01-31	→ 0
FX vs USD	px	1.1 2020-02-28	1.1 2020-01-31	→ -0
GDP	% YoY	-1 2020-02-21	0.3 2020-01-17	▼ -1.3
PMI (mfg)	index	49.1 2020-02-21	47.8 2020-01-24	▲ 1.3
PMI (svc)	index	52.8 2020-02-21	52.2 2020-01-24	▲ 0.6
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.13 2020-02-01	0.32 2020-01-01	▼ -0.18

Japan

Indicator	Basis	2020-02	2020-01	Change
Core CPI	% YoY	0.4 2020-02-21	0.5 2020-01-24	→ -0.1
CPI (YoY)	% YoY	0.7 2020-02-21	0.8 2020-01-24	→ -0.1
FX vs USD	px	109.66 2020-02-28	108.88 2020-01-31	▲ 0.78
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	2.4 2020-02-28	2.2 2020-01-31	▲ 0.2
10Y yield	%	-0.15 2020-02-01	-0.07 2020-01-01	▼ -0.09

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

stagflationary

contraction · above target · on hold

Contracting activity *and* above-target inflation — the hardest mix: the central bank can't ease freely. Real assets, energy and value tend to hold up better than long-duration growth and bonds.

● 1 active

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.

○ no change

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 47.2 → 50.9 (+3.7)

Manufacturing PMIPMI — Purchasing Managers' Index. Above 50 = the sector is expanding vs last month; below 50 = contracting. A timely read on activity. is above 50 and rising.
Why: A reading above 50 means more firms report expanding activity than contracting; rising means the breadth of expansion is widening — a timely, forward-looking growth signal.
Earnings expectations broaden toward economically-sensitive sectors.
Why: Stronger activity feeds revenue and pricing power first in the parts of the market geared to the physical economy.
Cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary., small-caps, EM and commodities lead; defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows. lag.
Why: Capital rotates toward the cycle — industrials, materials, energy, smaller and more leveraged firms, and the commodities their activity consumes — while steady-demand defensives become relatively less attractive.

Helps
cyclicals (industrials, materials, energy)small-capsEM equitycommodities

Hurts
defensive sectors (staples, utilities)long government bonds

Caveat: If acceleration also stokes inflation fears, the bond-yield response can offset the equity benefit (good growth becomes 'too good'), especially late-cycle.

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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 50 → 35.7 (-14.3)

Manufacturing PMI 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 defensives 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.
Cyclicals, 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

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

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.

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)	2.34	2.30	+0.04 ▬	2020-02-01
Core CPI	0.25	0.10	+0.15 ▲	2020-02-01
Core PCE	1.70	1.60	+0.10 ▬	2020-02-01
Policy rate	1.75	1.75	+0.00 ▬	2020-02-09
GDP	2.10	-5.20	+7.30 ▲	2020-01-30
PMI (mfg)	50.90	47.20	+3.70 ▲	2020-02-03
PMI (svc)	55.50	55.00	+0.50 ▲	2020-02-05
Unemployment	3.60	3.50	+0.10 ▲	2020-02-07
10Y yield	1.59	1.65	-0.06 ▼	2020-02-07
2Y yield	1.41	1.44	-0.03 ▬	2020-02-07
2s10s slope	0.18	0.21	-0.03 ▬	2020-02-07
FX vs USD	98.68	98.50	+0.18 ▬	2020-02-07

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	4.50	4.50	+0.00 ▬	2020-01-09
Policy rate	4.15	4.15	+0.00 ▬	2020-01-20
GDP	6.00	6.00	+0.00 ▬	2020-01-17
PMI (mfg)	35.70	50.00	-14.30 ▼	2020-02-01
PMI (svc)	54.10	53.50	+0.60 ▲	2020-01-31
Unemployment	6.20	5.30	+0.90 ▲	2020-02-01
10Y yield	2.80	2.84	-0.04 ▬	2020-02-07
2Y yield	2.32	2.35	-0.02 ▬	2020-02-07
2s10s slope	0.48	0.49	-0.01 ▬	2020-02-07
FX vs USD	6.97	6.97	-0.00 ▬	2020-02-07

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.40	1.30	+0.10 ▬	2020-01-31
Policy rate	0.00	0.00	+0.00 ▬	2020-01-23
GDP	0.30	-0.30	+0.60 ▲	2020-01-17
PMI (mfg)	47.90	47.80	+0.10 ▬	2020-02-03
PMI (svc)	52.50	52.20	+0.30 ▬	2020-02-05
Unemployment	7.40	7.50	-0.10 ▬	2020-01-30
10Y yield	0.13	0.32	-0.18 ▼	2020-02-01 ⚠
FX vs USD	1.10	1.10	-0.00 ▬	2020-02-07

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.80	0.50	+0.30 ▲	2020-01-24
Core CPI	0.50	0.50	+0.00 ▬	2020-01-24
Policy rate	-0.10	-0.10	+0.00 ▬	2020-01-21
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.20	2.20	+0.00 ▬	2020-01-31
10Y yield	-0.15	-0.07	-0.09 ▼	2020-02-01 ⚠
FX vs USD	109.97	109.81	+0.15 ▬	2020-02-07

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.