Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W20

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↩ Home Macro index ← 2020-05 board

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

Standing macro backdropBORROWED

Borrowed from its month (2020-05); the weekly reads the standing object, it does not recompute the aggregate.

United States: deflation watch
China: overheating / late-cycle
Euro area: deflation watch
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2020-05	2020-04	Change
Core CPI	% MoM	-0.13 2020-05-01	-0.49 2020-04-01	▲ 0.36
Core PCE	% YoY	1 2020-05-01	1 2020-04-01	→ 0
CPI (YoY)	% YoY	0.2 2020-05-01	0.31 2020-04-01	▼ -0.11
FX vs USD	px	98.34 2020-05-29	99.02 2020-04-30	▼ -0.68
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	41.5 2020-05-01	49.1 2020-04-01	▼ -7.6
PMI (svc)	index	41.8 2020-05-05	52.5 2020-04-03	▼ -10.7
Policy rate	%	0.25 2020-05-31	0.25 2020-04-30	→ 0
2s10s slope	pp	0.49 2020-05-29	0.44 2020-04-30	→ 0.05
Unemployment	%	13.2 2020-05-01	14.8 2020-04-01	▼ -1.6
10Y yield	%	0.65 2020-05-29	0.64 2020-04-30	→ 0.01
2Y yield	%	0.16 2020-05-29	0.2 2020-04-30	→ -0.04

China

Indicator	Basis	2020-05	2020-04	Change
CPI (YoY)	% YoY	3.3 2020-05-12	4.3 2020-04-10	▼ -1
FX vs USD	px	7.15 2020-05-29	7.08 2020-04-30	→ 0.07
GDP	% YoY	not recorded
PMI (mfg)	index	50.6 2020-05-01	50.8 2020-04-01	→ -0.2
PMI (svc)	index	53.6 2020-05-31	53.2 2020-04-30	▲ 0.4
Policy rate	% (1Y LPR)	3.85 2020-05-20	3.85 2020-04-20	→ 0
2s10s slope	pp	0.85 2020-05-29	1.17 2020-04-30	▼ -0.31
Unemployment	%	5.9 2020-05-01	6 2020-04-01	→ -0.1
10Y yield	%	2.71 2020-05-29	2.54 2020-04-30	▲ 0.17
2Y yield	%	1.85 2020-05-29	1.37 2020-04-30	▲ 0.48

Euro area

Indicator	Basis	2020-05	2020-04	Change
CPI (YoY)	% YoY	0.1 2020-05-29	0.4 2020-04-30	▼ -0.3
FX vs USD	px	1.11 2020-05-29	1.09 2020-04-30	→ 0.02
GDP	% YoY	-0.1 2020-05-29	0.3 2020-04-30	▼ -0.4
PMI (mfg)	index	39.5 2020-05-21	33.6 2020-04-23	▲ 5.9
PMI (svc)	index	28.7 2020-05-21	11.7 2020-04-23	▲ 17
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.48 2020-05-01	0.55 2020-04-01	▼ -0.07

Japan

Indicator	Basis	2020-05	2020-04	Change
Core CPI	% YoY	-0.1 2020-05-22	0.3 2020-04-24	▼ -0.4
CPI (YoY)	% YoY	0.1 2020-05-22	0.4 2020-04-24	▼ -0.3
FX vs USD	px	107.64 2020-05-29	106.61 2020-04-30	▲ 1.03
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-05-22	-0.1 2020-04-27	→ 0
Unemployment	%	2.8 2020-05-29	2.5 2020-04-28	▲ 0.3
10Y yield	%	0 2020-05-01	-0.04 2020-04-01	→ 0.04

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

deflation watch

contraction · 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.

● 2 active

China

overheating / late-cycle

stall · 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.

● 2 active

Euro area ⚠ stale

deflation watch

contraction · deflation risk · on hold

○ no change

Japan ⚠ stale

deflation watch

unknown · deflation risk · on hold

○ no change

Mechanisms & channelsL2

United States

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: -0.13 → -0.4 (-0.27)

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).

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 49.1 → 41.5 (-7.6)

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).

China

M3Monetary easing (rate cut)

Trigger: policy_rate: 4.05 → 3.85 (-0.2)

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).

M11China credit impulse (easing proxy)

Trigger: policy_rate: 4.05 → 3.85 (-0.2)

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

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)	0.30	0.20	+0.10 ▬	2020-05-12
Core CPI	-0.40	-0.13	-0.27 ▼	2020-05-12
Core PCE	1.00	1.70	-0.70 ▼	2020-05-01
Policy rate	0.25	0.25	+0.00 ▬	2020-05-17
GDP	-4.80	-28.00	+23.20 ▲	2020-04-29
PMI (mfg)	41.50	49.10	-7.60 ▼	2020-05-01
PMI (svc)	41.80	52.50	-10.70 ▼	2020-05-05
Unemployment	14.70	13.20	+1.50 ▲	2020-05-08
10Y yield	0.64	0.63	+0.01 ▬	2020-05-15
2Y yield	0.16	0.16	+0.00 ▬	2020-05-15
2s10s slope	0.48	0.47	+0.01 ▬	2020-05-15
FX vs USD	100.40	100.47	-0.07 ▬	2020-05-15

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.30	4.30	-1.00 ▼	2020-05-12
Policy rate	3.85	4.05	-0.20 ▼	2020-04-20
GDP	-6.80	6.00	-12.80 ▼	2020-04-17
PMI (mfg)	50.60	50.80	-0.20 ▬	2020-05-01
PMI (svc)	53.20	52.30	+0.90 ▲	2020-04-30
Unemployment	5.90	6.00	-0.10 ▬	2020-05-01
10Y yield	2.68	2.70	-0.02 ▬	2020-05-15
2Y yield	1.52	1.54	-0.01 ▬	2020-05-15
2s10s slope	1.16	1.16	-0.00 ▬	2020-05-15
FX vs USD	7.09	7.09	+0.00 ▬	2020-05-15

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.40	0.70	-0.30 ▼	2020-04-30
Policy rate	0.00	0.00	+0.00 ▬	2020-04-30
GDP	0.30	0.50	-0.20 ▬	2020-04-30
PMI (mfg)	33.40	33.60	-0.20 ▬	2020-05-04
PMI (svc)	12.00	11.70	+0.30 ▲	2020-05-06
Unemployment	7.40	7.30	+0.10 ▲	2020-04-30
10Y yield	0.48	0.55	-0.07 ▼	2020-05-01 ⚠⚠
FX vs USD	1.08	1.08	-0.00 ▬	2020-05-15

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.40	0.40	+0.00 ▬	2020-04-24
Core CPI	0.30	0.20	+0.10 ▬	2020-04-24
Policy rate	-0.10	-0.10	+0.00 ▬	2020-04-27
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.50	2.40	+0.10 ▲	2020-04-28
10Y yield	0.00	-0.04	+0.04 ▬	2020-05-01 ⚠⚠
FX vs USD	107.36	106.93	+0.43 ▬	2020-05-15

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.