Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W32

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

Read at: thesis narrative mechanism data

↩ Home Macro index ← 2020-08 board

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

Standing macro backdropBORROWED

Borrowed from its month (2020-08); the weekly reads the standing object, it does not recompute the aggregate.

United States: goldilocks / reflation
China: disinflationary stall
Euro area: deflation watch
Japan: deflation watch

month aggregated actuals

United States

Indicator	Basis	2020-08	2020-07	Change
Core CPI	% MoM	0.39 2020-08-01	0.58 2020-07-01	▼ -0.19
Core PCE	% YoY	1.39 2020-08-01	1.21 2020-07-01	▲ 0.18
CPI (YoY)	% YoY	1.28 2020-08-01	1 2020-07-01	▲ 0.28
FX vs USD	px	92.14 2020-08-31	93.49 2020-07-31	▼ -1.35
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	54.2 2020-08-03	52.6 2020-07-01	▲ 1.6
PMI (svc)	index	58.1 2020-08-05	57.1 2020-07-06	▲ 1
Policy rate	%	0.25 2020-08-31	0.25 2020-07-31	→ 0
2s10s slope	pp	0.58 2020-08-31	0.44 2020-07-31	▲ 0.14
Unemployment	%	8.4 2020-08-01	10.2 2020-07-01	▼ -1.8
10Y yield	%	0.72 2020-08-31	0.55 2020-07-31	▲ 0.17
2Y yield	%	0.14 2020-08-31	0.11 2020-07-31	→ 0.03

China

Indicator	Basis	2020-08	2020-07	Change
CPI (YoY)	% YoY	2.7 2020-08-10	2.5 2020-07-09	▲ 0.2
FX vs USD	px	6.86 2020-08-31	7.01 2020-07-31	→ -0.14
GDP	% YoY	not recorded
PMI (mfg)	index	51 2020-08-01	51.1 2020-07-01	→ -0.1
PMI (svc)	index	55.2 2020-08-31	54.2 2020-07-31	▲ 1
Policy rate	% (1Y LPR)	3.85 2020-08-20	3.85 2020-07-20	→ 0
2s10s slope	pp	0.24 2020-08-31	0.5 2020-07-31	▼ -0.26
Unemployment	%	5.6 2020-08-01	5.7 2020-07-01	→ -0.1
10Y yield	%	3.02 2020-08-31	2.97 2020-07-31	▲ 0.05
2Y yield	%	2.78 2020-08-31	2.47 2020-07-31	▲ 0.31

Euro area

Indicator	Basis	2020-08	2020-07	Change
CPI (YoY)	% YoY	0.4 2020-08-19	0.4 2020-07-31	→ 0
FX vs USD	px	1.19 2020-08-31	1.19 2020-07-31	→ 0
GDP	% YoY	-0.4 2020-08-19	0.3 2020-07-17	▼ -0.7
PMI (mfg)	index	51.7 2020-08-21	51.1 2020-07-24	▲ 0.6
PMI (svc)	index	50.1 2020-08-21	55.1 2020-07-24	▼ -5
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.16 2020-08-01	0.22 2020-07-01	▼ -0.06

Japan

Indicator	Basis	2020-08	2020-07	Change
Core CPI	% YoY	0.3 2020-08-21	0.2 2020-07-21	→ 0.1
CPI (YoY)	% YoY	0.3 2020-08-21	0.1 2020-07-21	▲ 0.2
FX vs USD	px	105.54 2020-08-31	104.68 2020-07-31	▲ 0.85
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.04 2020-08-01	0.01 2020-07-01	→ 0.04

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.

● 1 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

stall · 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

○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 52.6 → 54.2 (+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 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

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.1 → 51.8 (+0.7)

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).

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 slowdown (deepening contraction) Manufacturing is not both below 50 and falling, so the deepening-contraction channel is dormant. It fires when a sub-50 PMI turns lower — that is the trigger for the defensive rotation and a bid for duration (a sub-50 PMI that is *rising* is the trough channel, M13, not this one).

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)	1.28	0.60	+0.68 ▲	2020-08-01
Core CPI	0.39	0.20	+0.19 ▲	2020-08-01
Core PCE	1.39	0.90	+0.49 ▲	2020-08-01
Policy rate	0.25	0.25	+0.00 ▬	2020-08-09
GDP	-32.90	34.90	-67.80 ▼	2020-07-30
PMI (mfg)	54.20	52.60	+1.60 ▲	2020-08-03
PMI (svc)	58.10	57.10	+1.00 ▲	2020-08-05
Unemployment	10.20	8.40	+1.80 ▲	2020-08-07
10Y yield	0.57	0.55	+0.02 ▬	2020-08-07
2Y yield	0.13	0.11	+0.02 ▬	2020-08-07
2s10s slope	0.44	0.44	+0.00 ▬	2020-08-07
FX vs USD	93.44	92.79	+0.65 ▲	2020-08-07

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 ▬	2020-07-20
GDP	3.20	-6.80	+10.00 ▲	2020-07-16
PMI (mfg)	51.00	51.10	-0.10 ▬	2020-08-01
PMI (svc)	54.20	54.40	-0.20 ▬	2020-07-31
Unemployment	5.60	5.70	-0.10 ▼	2020-08-01
10Y yield	2.99	2.98	+0.01 ▬	2020-08-07
2Y yield	2.63	2.61	+0.02 ▬	2020-08-07
2s10s slope	0.36	0.37	-0.01 ▬	2020-08-07
FX vs USD	6.95	6.93	+0.02 ▬	2020-08-07

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.40	0.30	+0.10 ▲	2020-07-31
Policy rate	0.00	0.00	+0.00 ▬	2020-07-16
GDP	0.30	0.30	+0.00 ▬	2020-07-17
PMI (mfg)	51.80	51.10	+0.70 ▲	2020-08-03
PMI (svc)	54.70	55.10	-0.40 ▼	2020-08-05
Unemployment	7.80	7.40	+0.40 ▲	2020-07-30
10Y yield	0.16	0.22	-0.06 ▼	2020-08-01 ⚠
FX vs USD	1.19	1.19	+0.00 ▬	2020-08-07

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.10	+0.00 ▬	2020-07-21
Core CPI	0.20	0.10	+0.10 ▬	2020-07-21
Policy rate	-0.10	-0.10	+0.00 ▬	2020-07-15
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.80	3.00	-0.20 ▼	2020-07-31
10Y yield	0.04	0.01	+0.04 ▬	2020-08-01 ⚠
FX vs USD	105.58	105.55	+0.03 ▬	2020-08-07

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.