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Macro Regime — 2020-W23

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↩ Home Macro index ← 2020-06 board

Standing macro backdropBORROWED

Borrowed from its month (2020-06); the weekly reads the standing object, it does not recompute the aggregate.

United States: deflation watch
China: stall-speed, at target
Euro area: deflation watch
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2020-06	2020-05	Change
Core CPI	% MoM	0.16 2020-06-01	-0.13 2020-05-01	▲ 0.29
Core PCE	% YoY	0.97 2020-06-01	1 2020-05-01	→ -0.03
CPI (YoY)	% YoY	0.72 2020-06-01	0.2 2020-05-01	▲ 0.52
FX vs USD	px	97.39 2020-06-30	98.34 2020-05-29	▼ -0.95
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	43.1 2020-06-01	41.5 2020-05-01	▲ 1.6
PMI (svc)	index	45.4 2020-06-03	41.8 2020-05-05	▲ 3.6
Policy rate	%	0.25 2020-06-30	0.25 2020-05-31	→ 0
2s10s slope	pp	0.5 2020-06-30	0.49 2020-05-29	→ 0.01
Unemployment	%	11 2020-06-01	13.2 2020-05-01	▼ -2.2
10Y yield	%	0.66 2020-06-30	0.65 2020-05-29	→ 0.01
2Y yield	%	0.16 2020-06-30	0.16 2020-05-29	→ 0

China

Indicator	Basis	2020-06	2020-05	Change
CPI (YoY)	% YoY	2.4 2020-06-10	3.3 2020-05-12	▼ -0.9
FX vs USD	px	7.08 2020-06-30	7.15 2020-05-29	→ -0.07
GDP	% YoY	not recorded
PMI (mfg)	index	50.9 2020-06-01	50.6 2020-05-01	→ 0.3
PMI (svc)	index	54.4 2020-06-30	53.6 2020-05-31	▲ 0.8
Policy rate	% (1Y LPR)	3.85 2020-06-22	3.85 2020-05-20	→ 0
2s10s slope	pp	0.58 2020-06-30	0.85 2020-05-29	▼ -0.27
Unemployment	%	5.7 2020-06-01	5.9 2020-05-01	▼ -0.2
10Y yield	%	2.82 2020-06-30	2.71 2020-05-29	▲ 0.12
2Y yield	%	2.24 2020-06-30	1.85 2020-05-29	▲ 0.39

Euro area

Indicator	Basis	2020-06	2020-05	Change
CPI (YoY)	% YoY	0.3 2020-06-30	0.1 2020-05-29	▲ 0.2
FX vs USD	px	1.12 2020-06-30	1.11 2020-05-29	→ 0.02
GDP	% YoY	0.3 2020-06-30	-0.1 2020-05-29	▲ 0.4
PMI (mfg)	index	46.9 2020-06-23	39.5 2020-05-21	▲ 7.4
PMI (svc)	index	47.3 2020-06-23	28.7 2020-05-21	▲ 18.6
Policy rate	%	0 2020-06-04	—	—
Unemployment	%	7.3 2020-06-03	—	—
10Y yield	%	0.35 2020-06-01	0.48 2020-05-01	▼ -0.13

Japan

Indicator	Basis	2020-06	2020-05	Change
Core CPI	% YoY	0.1 2020-06-19	-0.1 2020-05-22	▲ 0.2
CPI (YoY)	% YoY	0.1 2020-06-19	0.1 2020-05-22	→ 0
FX vs USD	px	107.59 2020-06-30	107.64 2020-05-29	→ -0.05
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-06-16	-0.1 2020-05-22	→ 0
Unemployment	%	3 2020-06-30	2.8 2020-05-29	▲ 0.2
10Y yield	%	0.03 2020-06-01	0 2020-05-01	→ 0.03

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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.

● 2 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

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.

○ no change

Japan

deflation watch

unknown · deflation risk · on hold

● 1 active

Mechanisms & channelsL2

United States

M1Inflation surprise (upside)

Trigger: core_cpi: -0.4 → 0.16 (+0.56)

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).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 41.5 → 43.1 (+1.6)

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 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 cyclicalscyclicals — Sectors whose earnings rise and fall with the economic cycle — industrials, materials, energy, consumer discretionary. and small-caps tend to lead off the low; defensivesdefensives — Sectors whose demand is steady through the cycle — consumer staples, utilities, healthcare. They outperform when growth slows.' 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).

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

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

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.3 → -0.1 (-0.4)

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 yields 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 rate 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).

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.
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)	0.72	0.30	+0.42 ▲	2020-06-01
Core CPI	0.16	-0.40	+0.56 ▲	2020-06-01
Core PCE	0.97	1.00	-0.03 ▬	2020-06-01
Policy rate	0.25	0.25	+0.00 ▬	2020-06-07
GDP	-5.00	-4.80	-0.20 ▼	2020-05-28
PMI (mfg)	43.10	41.50	+1.60 ▲	2020-06-01
PMI (svc)	45.40	41.80	+3.60 ▲	2020-06-03
Unemployment	13.30	11.00	+2.30 ▲	2020-06-05
10Y yield	0.91	0.82	+0.09 ▲	2020-06-05
2Y yield	0.22	0.19	+0.03 ▬	2020-06-05
2s10s slope	0.69	0.63	+0.06 ▲	2020-06-05
FX vs USD	96.94	96.68	+0.26 ▬	2020-06-05

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.30	4.30	-1.00 ▼	2020-05-12
Policy rate	3.85	3.85	+0.00 ▬	2020-05-20
GDP	-6.80	6.00	-12.80 ▼	2020-04-17
PMI (mfg)	50.90	50.60	+0.30 ▬	2020-06-01
PMI (svc)	53.60	53.20	+0.40 ▲	2020-05-31
Unemployment	5.70	5.90	-0.20 ▼	2020-06-01
10Y yield	2.85	2.83	+0.02 ▬	2020-06-05
2Y yield	2.26	2.23	+0.02 ▬	2020-06-05
2s10s slope	0.59	0.60	-0.01 ▬	2020-06-05
FX vs USD	7.11	7.11	-0.01 ▬	2020-06-05

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.30	-0.20 ▼	2020-05-29
Policy rate	0.00	0.00	+0.00 ▬	2020-06-04
GDP	-0.10	0.30	-0.40 ▼	2020-05-29
PMI (mfg)	39.40	39.50	-0.10 ▬	2020-06-01
PMI (svc)	30.50	28.70	+1.80 ▲	2020-06-03
Unemployment	7.30	7.40	-0.10 ▼	2020-06-03
10Y yield	0.35	0.48	-0.13 ▼	2020-06-01
FX vs USD	1.13	1.12	+0.01 ▬	2020-06-05

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.40	-0.30 ▼	2020-05-22
Core CPI	-0.10	0.30	-0.40 ▼	2020-05-22
Policy rate	-0.10	-0.10	+0.00 ▬	2020-05-22
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.80	2.50	+0.30 ▲	2020-05-29
10Y yield	0.03	0.00	+0.03 ▬	2020-06-01
FX vs USD	109.15	109.00	+0.15 ▬	2020-06-05

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.