Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W29

→

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2020-07 board

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

Standing macro backdropBORROWED

Borrowed from its month (2020-07); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2020-07	2020-06	Change
Core CPI	% MoM	0.58 2020-07-01	0.16 2020-06-01	▲ 0.42
Core PCE	% YoY	1.21 2020-07-01	0.97 2020-06-01	▲ 0.24
CPI (YoY)	% YoY	1 2020-07-01	0.72 2020-06-01	▲ 0.28
FX vs USD	px	93.49 2020-07-31	97.39 2020-06-30	▼ -3.9
GDP	% QoQ ann.	34.9 2020-07-01	—	—
PMI (mfg)	index	52.6 2020-07-01	43.1 2020-06-01	▲ 9.5
PMI (svc)	index	57.1 2020-07-06	45.4 2020-06-03	▲ 11.7
Policy rate	%	0.25 2020-07-31	0.25 2020-06-30	→ 0
2s10s slope	pp	0.44 2020-07-31	0.5 2020-06-30	▼ -0.06
Unemployment	%	10.2 2020-07-01	11 2020-06-01	▼ -0.8
10Y yield	%	0.55 2020-07-31	0.66 2020-06-30	▼ -0.11
2Y yield	%	0.11 2020-07-31	0.16 2020-06-30	→ -0.05

China

Indicator	Basis	2020-07	2020-06	Change
CPI (YoY)	% YoY	2.5 2020-07-09	2.4 2020-06-10	→ 0.1
FX vs USD	px	7.01 2020-07-31	7.08 2020-06-30	→ -0.07
GDP	% YoY	3.2 2020-07-16	—	—
PMI (mfg)	index	51.1 2020-07-01	50.9 2020-06-01	→ 0.2
PMI (svc)	index	54.2 2020-07-31	54.4 2020-06-30	→ -0.2
Policy rate	% (1Y LPR)	3.85 2020-07-20	3.85 2020-06-22	→ 0
2s10s slope	pp	0.5 2020-07-31	0.58 2020-06-30	▼ -0.08
Unemployment	%	5.7 2020-07-01	5.7 2020-06-01	→ 0
10Y yield	%	2.97 2020-07-31	2.82 2020-06-30	▲ 0.14
2Y yield	%	2.47 2020-07-31	2.24 2020-06-30	▲ 0.23

Euro area

Indicator	Basis	2020-07	2020-06	Change
CPI (YoY)	% YoY	0.4 2020-07-31	0.3 2020-06-30	→ 0.1
FX vs USD	px	1.19 2020-07-31	1.12 2020-06-30	→ 0.06
GDP	% YoY	0.3 2020-07-17	0.3 2020-06-30	→ 0
PMI (mfg)	index	51.1 2020-07-24	46.9 2020-06-23	▲ 4.2
PMI (svc)	index	55.1 2020-07-24	47.3 2020-06-23	▲ 7.8
Policy rate	%	0 2020-07-16	0 2020-06-04	→ 0
Unemployment	%	7.8 2020-07-30	7.3 2020-06-03	▲ 0.5
10Y yield	%	0.22 2020-07-01	0.35 2020-06-01	▼ -0.13

Japan

Indicator	Basis	2020-07	2020-06	Change
Core CPI	% YoY	0.2 2020-07-21	0.1 2020-06-19	→ 0.1
CPI (YoY)	% YoY	0.1 2020-07-21	0.1 2020-06-19	→ 0
FX vs USD	px	104.68 2020-07-31	107.59 2020-06-30	▼ -2.91
GDP	% YoY	-4.3 2020-07-01	—	—
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-07-15	-0.1 2020-06-16	→ 0
Unemployment	%	2.8 2020-07-31	3 2020-06-30	▼ -0.2
10Y yield	%	0.01 2020-07-01	0.03 2020-06-01	→ -0.02

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

goldilocks / reflation

expansion · below target · on hold

Improving growth with inflation at/below target — the benign mix. Cyclicals, small-caps and risk assets broadly tend to lead; long bonds lag as growth firms.

● 2 active

China

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.

○ no change

Euro area ⚠ stale

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.

● 1 active

Japan ⚠ stale

deflation watch

unknown · deflation risk · on hold

● 1 active

Mechanisms & channelsL2

United States

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.58 → 0.2 (-0.38)

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: 43.1 → 52.6 (+9.5)

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

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

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 46.9 → 47.4 (+0.5)

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).

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

M1Inflation surprise (upside)

Trigger: core_cpi: -0.1 → 0.1 (+0.2)

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 yields 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 rate 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).

What would change the read

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.
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)	0.60	1.00	-0.40 ▼	2020-07-14
Core CPI	0.20	0.58	-0.38 ▼	2020-07-14
Core PCE	1.21	1.00	+0.21 ▲	2020-07-01
Policy rate	0.25	0.25	+0.00 ▬	2020-07-19
GDP	34.90	-5.00	+39.90 ▲	2020-07-01
PMI (mfg)	52.60	43.10	+9.50 ▲	2020-07-01
PMI (svc)	57.10	45.40	+11.70 ▲	2020-07-06
Unemployment	11.10	10.20	+0.90 ▲	2020-07-02
10Y yield	0.64	0.62	+0.02 ▬	2020-07-17
2Y yield	0.14	0.16	-0.02 ▬	2020-07-17
2s10s slope	0.50	0.46	+0.04 ▬	2020-07-17
FX vs USD	95.94	96.35	-0.41 ▬	2020-07-17

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.50	2.40	+0.10 ▲	2020-07-09
Policy rate	3.85	3.85	+0.00 ▬	2020-06-22
GDP	3.20	-6.80	+10.00 ▲	2020-07-16
PMI (mfg)	51.10	50.90	+0.20 ▬	2020-07-01
PMI (svc)	54.40	53.60	+0.80 ▲	2020-06-30
Unemployment	5.70	5.70	+0.00 ▬	2020-07-01
10Y yield	2.95	2.95	+0.00 ▬	2020-07-17
2Y yield	2.44	2.48	-0.04 ▬	2020-07-17
2s10s slope	0.51	0.47	+0.04 ▬	2020-07-17
FX vs USD	6.99	6.99	+0.00 ▬	2020-07-17

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.30	0.30	+0.00 ▬	2020-07-17
Policy rate	0.00	0.00	+0.00 ▬	2020-07-16
GDP	0.30	0.30	+0.00 ▬	2020-07-17
PMI (mfg)	47.40	46.90	+0.50 ▲	2020-07-01
PMI (svc)	48.30	47.30	+1.00 ▲	2020-07-03
Unemployment	7.40	7.30	+0.10 ▲	2020-07-02
10Y yield	0.22	0.35	-0.13 ▼	2020-07-01 ⚠⚠
FX vs USD	1.14	1.14	-0.00 ▬	2020-07-17

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.10	+0.00 ▬	2020-06-19
Core CPI	0.10	-0.10	+0.20 ▲	2020-06-19
Policy rate	-0.10	-0.10	+0.00 ▬	2020-07-15
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.00	2.80	+0.20 ▲	2020-06-30
10Y yield	0.01	0.03	-0.02 ▬	2020-07-01 ⚠⚠
FX vs USD	107.28	106.92	+0.36 ▬	2020-07-17

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.