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Macro Regime — 2020-W09

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Standing macro backdropBORROWED

Borrowed from its month (2020-03); 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: deflation watch

month aggregated actuals

United States

Indicator	Basis	2020-03	2020-02	Change
Core CPI	% MoM	-0.12 2020-03-01	0.25 2020-02-01	▼ -0.37
Core PCE	% YoY	1.53 2020-03-01	1.7 2020-02-01	▼ -0.17
CPI (YoY)	% YoY	1.49 2020-03-01	2.34 2020-02-01	▼ -0.85
FX vs USD	px	99.05 2020-03-31	98.13 2020-02-28	▲ 0.92
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	50.1 2020-03-02	50.9 2020-02-03	▼ -0.8
PMI (svc)	index	57.3 2020-03-04	55.5 2020-02-05	▲ 1.8
Policy rate	%	0.25 2020-03-31	1.75 2020-02-29	▼ -1.5
2s10s slope	pp	0.47 2020-03-31	0.27 2020-02-28	▲ 0.2
Unemployment	%	4.4 2020-03-01	3.5 2020-02-01	▲ 0.9
10Y yield	%	0.7 2020-03-31	1.13 2020-02-28	▼ -0.43
2Y yield	%	0.23 2020-03-31	0.86 2020-02-28	▼ -0.63

China

Indicator	Basis	2020-03	2020-02	Change
CPI (YoY)	% YoY	5.2 2020-03-10	5.4 2020-02-10	▼ -0.2
FX vs USD	px	7.1 2020-03-31	7 2020-02-28	→ 0.1
GDP	% YoY	not recorded
PMI (mfg)	index	52 2020-03-01	35.7 2020-02-01	▲ 16.3
PMI (svc)	index	52.3 2020-03-31	29.6 2020-02-29	▲ 22.7
Policy rate	% (1Y LPR)	4.05 2020-03-20	4.05 2020-02-20	→ 0
2s10s slope	pp	0.68 2020-03-31	0.48 2020-02-28	▲ 0.2
Unemployment	%	5.9 2020-03-01	6.2 2020-02-01	▼ -0.3
10Y yield	%	2.59 2020-03-31	2.74 2020-02-28	▼ -0.15
2Y yield	%	1.91 2020-03-31	2.25 2020-02-28	▼ -0.35

Euro area

Indicator	Basis	2020-03	2020-02	Change
CPI (YoY)	% YoY	0.7 2020-03-31	1.4 2020-02-21	▼ -0.7
FX vs USD	px	1.1 2020-03-31	1.1 2020-02-28	→ 0
GDP	% YoY	0.5 2020-03-31	-1 2020-02-21	▲ 1.5
PMI (mfg)	index	44.8 2020-03-24	49.1 2020-02-21	▼ -4.3
PMI (svc)	index	28.4 2020-03-24	52.8 2020-02-21	▼ -24.4
Policy rate	%	0 2020-03-12	—	—
Unemployment	%	7.4 2020-03-03	—	—
10Y yield	%	0.37 2020-03-01	0.13 2020-02-01	▲ 0.24

Japan

Indicator	Basis	2020-03	2020-02	Change
Core CPI	% YoY	0.2 2020-03-19	0.4 2020-02-21	▼ -0.2
CPI (YoY)	% YoY	0.4 2020-03-19	0.7 2020-02-21	▼ -0.3
FX vs USD	px	108.04 2020-03-31	109.66 2020-02-28	▼ -1.62
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-03-16	—	—
Unemployment	%	2.4 2020-03-31	2.4 2020-02-28	→ 0
10Y yield	%	0.01 2020-03-01	-0.15 2020-02-01	▲ 0.16

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.

● 2 active

China

overheating / late-cycle

expansion · above target · easing

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.

● 3 active

Euro area

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.

● 2 active

Japan

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

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.2 → -0.12 (-0.32)

Core inflation falls more than the prior reading.
Why: A faster-than-expected cooling in the persistent part of inflation tells the market the central bank has more room to ease.
The market prices an earlier or deeper easing path.
Why: Lower inflation removes the reason to keep rates high, so traders pull forward expected cuts into the curve.
Real yieldsreal yield — The yield after subtracting expected inflation — what a lender actually earns in purchasing power. Real yield ≈ nominal yield − expected inflation. fall.
Why: The expected policy ratepolicy 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. drops while inflation expectations stay anchored, so the inflation-adjusted return demanded by lenders declines.
A lower 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. re-rates long-duration assets upward; long bonds rally.
Why: Future cash flows are now discounted less harshly, lifting growth equities most; bond prices rise mechanically as their yields fall.

Helps
long-duration growth equitieslong-dated government bondsgoldrate-sensitive sectors (utilities, REITs)

Hurts
USD (vs easing-laggard peers)bank net-interest margins

Caveat: Misfires if disinflation is driven by demand collapse rather than supply normalization — then the growth scare dominates and risk assets fall despite lower yields.

House-view hook — empty (textbook default; Stephen's view bakes in here).

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).

China

M3Monetary easing (rate cut)

Trigger: policy_rate: 4.15 → 4.05 (-0.1)

The central bank cuts its policy rate.
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount rates fall across asset classes and liquidity expectations rise.
Why: A lower risk-free rate raises the present value of future cash flows everywhere, and a cut signals the bank will keep conditions loose.
Risk assets re-rate up; the currency softens.
Why: Cheaper money flows toward higher-returning assets, and a lower local rate narrows the yield advantage of holding the currency, so it weakens.
The weaker currency lifts exporters, commodities, gold, and EM.
Why: Commodities priced in the easing currency rise in that currency; exporters gain competitiveness; and EM borrowers with dollar debt benefit as the dollar softens.

Helps
equities (broadly)goldEM assetslong-duration bondscommodities

Hurts
the easing currencycash/money-market real yield

Caveat: If the cut is an emergency response to a fast-deteriorating outlook ('cutting into a recession'), equities can fall even as bonds rally — the growth signal outweighs the liquidity boost.

House-view hook — empty (textbook default; Stephen's view bakes in here).

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 35.7 → 52 (+16.3)

Manufacturing PMI 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.
Cyclicals, small-caps, EM and commodities lead; defensives 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).

M11China credit impulse (easing proxy)

Trigger: policy_rate: 4.15 → 4.05 (-0.1)

China cuts its benchmark lending rate (LPR).
Why: A lower LPR reduces borrowing costs and is the most visible signal that policymakers want credit to flow — a proxy for a turn-up in the credit impulsecredit 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..
The flow of new credit into the economy turns up.
Why: Cheaper credit pulls forward borrowing by firms and local governments, raising the change in outstanding credit — the impulse — which leads activity by one to three quarters.
Industrial commodities, China/HK cyclicals, and the EM/commodity-exporter complex benefit.
Why: China is the marginal buyer of many industrial commodities, so a credit-driven activity pickup lifts their prices and the equities and exporter currencies geared to that demand.

Helps
industrial commoditiesChina/HK cyclicalsEM equitycommodity exporters (AUD, BRL)

Hurts
CNY (on the rate cut)China government bond yields (fall)

Caveat: LPR is only a proxy; the true impulse needs total-social-financing / new-loan data (a Rung-2 addition). A cut without a pickup in actual credit demand ('pushing on a string') doesn't deliver the transmission.

House-view hook — empty (textbook default; Stephen's view bakes in here).

Euro area

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 0.132263 → 0.372634 (+0.240372)

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yield raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

Caveat: Granularity is daily, so a single-session jump can be noise; a sustained multi-session move is the real signal. Distinguish a growth-driven rise (risk-on) from a supply/term-premium rise (risk-off).

House-view hook — empty (textbook default; Stephen's view bakes in here).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 47.9 → 49.1 (+1.2)

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).

Japan

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: -0.155 → 0.005 (+0.16)

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yield raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

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.

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.49	2.50	-1.01 ▼	2020-03-01
Core CPI	-0.12	0.20	-0.32 ▼	2020-03-01
Core PCE	1.53	1.60	-0.07 ▬	2020-03-01
Policy rate	1.75	1.75	+0.00 ▬	2020-03-01
GDP	2.10	2.10	+0.00 ▬	2020-02-27
PMI (mfg)	50.90	47.20	+3.70 ▲	2020-02-03
PMI (svc)	55.50	55.00	+0.50 ▲	2020-02-05
Unemployment	4.40	3.60	+0.80 ▲	2020-03-01
10Y yield	1.13	1.30	-0.17 ▼	2020-02-28
2Y yield	0.86	1.11	-0.25 ▼	2020-02-28
2s10s slope	0.27	0.19	+0.08 ▲	2020-02-28
FX vs USD	98.13	98.44	-0.31 ▬	2020-02-28

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	5.40	4.50	+0.90 ▲	2020-02-10
Policy rate	4.05	4.15	-0.10 ▼	2020-02-20
GDP	6.00	6.00	+0.00 ▬	2020-01-17
PMI (mfg)	52.00	35.70	+16.30 ▲	2020-03-01
PMI (svc)	29.60	54.10	-24.50 ▼	2020-02-29
Unemployment	5.90	6.20	-0.30 ▼	2020-03-01
10Y yield	2.74	2.77	-0.03 ▬	2020-02-28
2Y yield	2.25	2.28	-0.03 ▬	2020-02-28
2s10s slope	0.48	0.49	-0.00 ▬	2020-02-28
FX vs USD	7.00	7.04	-0.04 ▬	2020-02-28

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.40	1.40	+0.00 ▬	2020-02-21
Policy rate	0.00	0.00	+0.00 ▬	2020-01-23
GDP	-1.00	0.30	-1.30 ▼	2020-02-21
PMI (mfg)	49.10	47.90	+1.20 ▲	2020-02-21
PMI (svc)	52.80	52.50	+0.30 ▬	2020-02-21
Unemployment	7.40	7.50	-0.10 ▬	2020-01-30
10Y yield	0.37	0.13	+0.24 ▲	2020-03-01
FX vs USD	1.10	1.09	+0.01 ▬	2020-02-28

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.70	0.80	-0.10 ▼	2020-02-21
Core CPI	0.40	0.50	-0.10 ▬	2020-02-21
Policy rate	-0.10	-0.10	+0.00 ▬	2020-01-21
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.40	2.20	+0.20 ▲	2020-02-28
10Y yield	0.01	-0.15	+0.16 ▲	2020-03-01
FX vs USD	109.66	110.36	-0.70 ▼	2020-02-28

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.