Macro Intelligence · Weekly · deep read

Macro Regime — 2020-W39

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

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↩ Home Macro index ← 2020-09 board

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

Standing macro backdropBORROWED

Borrowed from its month (2020-09); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2020-09	2020-08	Change
Core CPI	% MoM	0.19 2020-09-01	0.39 2020-08-01	▼ -0.2
Core PCE	% YoY	1.48 2020-09-01	1.39 2020-08-01	→ 0.09
CPI (YoY)	% YoY	1.39 2020-09-01	1.28 2020-08-01	▲ 0.11
FX vs USD	px	93.89 2020-09-30	92.14 2020-08-31	▲ 1.75
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	56 2020-09-01	54.2 2020-08-03	▲ 1.8
PMI (svc)	index	56.9 2020-09-03	58.1 2020-08-05	▼ -1.2
Policy rate	%	0.25 2020-09-30	0.25 2020-08-31	→ 0
2s10s slope	pp	0.56 2020-09-30	0.58 2020-08-31	→ -0.02
Unemployment	%	7.8 2020-09-01	8.4 2020-08-01	▼ -0.6
10Y yield	%	0.69 2020-09-30	0.72 2020-08-31	→ -0.03
2Y yield	%	0.13 2020-09-30	0.14 2020-08-31	→ -0.01

China

Indicator	Basis	2020-09	2020-08	Change
CPI (YoY)	% YoY	2.4 2020-09-09	2.7 2020-08-10	▼ -0.3
FX vs USD	px	6.82 2020-09-30	6.86 2020-08-31	→ -0.05
GDP	% YoY	not recorded
PMI (mfg)	index	51.5 2020-09-01	51 2020-08-01	▲ 0.5
PMI (svc)	index	55.9 2020-09-30	55.2 2020-08-31	▲ 0.7
Policy rate	% (1Y LPR)	3.85 2020-09-21	3.85 2020-08-20	→ 0
2s10s slope	pp	0.36 2020-09-30	0.24 2020-08-31	▲ 0.12
Unemployment	%	5.4 2020-09-01	5.6 2020-08-01	▼ -0.2
10Y yield	%	3.15 2020-09-30	3.02 2020-08-31	▲ 0.13
2Y yield	%	2.79 2020-09-30	2.78 2020-08-31	→ 0.01

Euro area

Indicator	Basis	2020-09	2020-08	Change
CPI (YoY)	% YoY	-0.2 2020-09-17	0.4 2020-08-19	▼ -0.6
FX vs USD	px	1.17 2020-09-30	1.19 2020-08-31	→ -0.02
GDP	% YoY	-0.4 2020-09-17	-0.4 2020-08-19	→ 0
PMI (mfg)	index	53.7 2020-09-23	51.7 2020-08-21	▲ 2
PMI (svc)	index	47.6 2020-09-23	50.1 2020-08-21	▼ -2.5
Policy rate	%	0 2020-09-10	—	—
Unemployment	%	7.9 2020-09-01	—	—
10Y yield	%	0.12 2020-09-01	0.16 2020-08-01	→ -0.04

Japan

Indicator	Basis	2020-09	2020-08	Change
Core CPI	% YoY	-0.4 2020-09-18	0.3 2020-08-21	▼ -0.7
CPI (YoY)	% YoY	0.2 2020-09-18	0.3 2020-08-21	→ -0.1
FX vs USD	px	105.66 2020-09-30	105.54 2020-08-31	→ 0.13
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	-0.1 2020-09-17	—	—
Unemployment	%	2.9 2020-09-01	—	—
10Y yield	%	0.01 2020-09-01	0.04 2020-08-01	→ -0.03

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

expansion, at target

expansion · at target · on hold

Solid growth with inflation near target. Constructive for risk assets broadly; the watch-item is whether inflation starts to push above target and shifts policy.

● 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.

● 1 active

Euro area ⚠ stale

goldilocks / reflation

expansion · deflation risk · 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

Japan ⚠ stale

deflation watch

unknown · 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

Mechanisms & channelsL2

United States

M1Inflation surprise (upside)

Trigger: core_cpi: 0.19 → 0.4 (+0.21)

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).

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 54.2 → 56 (+1.8)

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51 → 51.5 (+0.5)

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).

Euro area

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.7 → 53.7 (+2)

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

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.3 → -0.4 (-0.7)

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)	1.30	1.39	-0.09 ▬	2020-09-11
Core CPI	0.40	0.19	+0.21 ▲	2020-09-11
Core PCE	1.48	1.30	+0.18 ▲	2020-09-01
Policy rate	0.25	0.25	+0.00 ▬	2020-09-27
GDP	-31.70	-32.90	+1.20 ▲	2020-08-27
PMI (mfg)	56.00	54.20	+1.80 ▲	2020-09-01
PMI (svc)	56.90	58.10	-1.20 ▼	2020-09-03
Unemployment	8.40	7.80	+0.60 ▲	2020-09-04
10Y yield	0.66	0.67	-0.01 ▬	2020-09-25
2Y yield	0.12	0.14	-0.02 ▬	2020-09-25
2s10s slope	0.54	0.53	+0.01 ▬	2020-09-25
FX vs USD	94.58	94.35	+0.23 ▬	2020-09-25

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.70	-0.30 ▼	2020-09-09
Policy rate	3.85	3.85	+0.00 ▬	2020-09-21
GDP	3.20	-6.80	+10.00 ▲	2020-07-16
PMI (mfg)	51.50	51.00	+0.50 ▲	2020-09-01
PMI (svc)	55.20	54.20	+1.00 ▲	2020-08-31
Unemployment	5.40	5.60	-0.20 ▼	2020-09-01
10Y yield	3.13	3.13	+0.00 ▬	2020-09-27
2Y yield	2.77	2.75	+0.02 ▬	2020-09-27
2s10s slope	0.36	0.38	-0.02 ▬	2020-09-27
FX vs USD	6.83	6.81	+0.02 ▬	2020-09-25

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.20	-0.20	+0.00 ▬	2020-09-17
Policy rate	0.00	0.00	+0.00 ▬	2020-09-10
GDP	-0.40	-0.40	+0.00 ▬	2020-09-17
PMI (mfg)	53.70	51.70	+2.00 ▲	2020-09-23
PMI (svc)	47.60	50.50	-2.90 ▼	2020-09-23
Unemployment	7.90	7.80	+0.10 ▲	2020-09-01
10Y yield	0.12	0.16	-0.04 ▬	2020-09-01 ⚠⚠
FX vs USD	1.17	1.17	+0.00 ▬	2020-09-25

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.20	0.30	-0.10 ▬	2020-09-18
Core CPI	-0.40	0.30	-0.70 ▼	2020-09-18
Policy rate	-0.10	-0.10	+0.00 ▬	2020-09-17
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.90	2.80	+0.10 ▲	2020-09-01
10Y yield	0.01	0.04	-0.03 ▬	2020-09-01 ⚠⚠
FX vs USD	105.43	105.30	+0.13 ▬	2020-09-25

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.