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Macro Regime — 2020-W45

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↩ Home Macro index ← 2020-11 board

Standing macro backdropBORROWED

Borrowed from its month (2020-11); the weekly reads the standing object, it does not recompute the aggregate.

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

month aggregated actuals

United States

Indicator	Basis	2020-11	2020-10	Change
Core CPI	% MoM	0.25 2020-11-01	0.14 2020-10-01	▲ 0.11
Core PCE	% YoY	1.45 2020-11-01	1.42 2020-10-01	→ 0.03
CPI (YoY)	% YoY	1.18 2020-11-01	1.23 2020-10-01	→ -0.05
FX vs USD	px	91.87 2020-11-30	94.04 2020-10-30	▼ -2.17
GDP	% QoQ ann.	not recorded
PMI (mfg)	index	59.3 2020-11-02	55.4 2020-10-01	▲ 3.9
PMI (svc)	index	56.6 2020-11-04	57.8 2020-10-05	▼ -1.2
Policy rate	%	0.25 2020-11-30	0.25 2020-10-31	→ 0
2s10s slope	pp	0.68 2020-11-30	0.74 2020-10-30	▼ -0.06
Unemployment	%	6.7 2020-11-01	6.9 2020-10-01	▼ -0.2
10Y yield	%	0.84 2020-11-30	0.88 2020-10-30	→ -0.04
2Y yield	%	0.16 2020-11-30	0.14 2020-10-30	→ 0.02

China

Indicator	Basis	2020-11	2020-10	Change
CPI (YoY)	% YoY	0.5 2020-11-10	1.7 2020-10-15	▼ -1.2
FX vs USD	px	6.58 2020-11-30	6.71 2020-10-30	→ -0.14
GDP	% YoY	not recorded
PMI (mfg)	index	52.1 2020-11-01	51.4 2020-10-01	▲ 0.7
PMI (svc)	index	56.4 2020-11-30	56.2 2020-10-31	→ 0.2
Policy rate	% (1Y LPR)	3.85 2020-11-20	3.85 2020-10-20	→ 0
2s10s slope	pp	0.28 2020-11-30	0.31 2020-10-30	→ -0.03
Unemployment	%	5.2 2020-11-01	5.3 2020-10-01	→ -0.1
10Y yield	%	3.25 2020-11-30	3.18 2020-10-30	▲ 0.07
2Y yield	%	2.97 2020-11-30	2.87 2020-10-30	▲ 0.1

Euro area

Indicator	Basis	2020-11	2020-10	Change
CPI (YoY)	% YoY	-0.3 2020-11-18	-0.3 2020-10-30	→ 0
FX vs USD	px	1.2 2020-11-30	1.17 2020-10-30	→ 0.03
GDP	% YoY	0.2 2020-11-18	0.2 2020-10-30	→ 0
PMI (mfg)	index	53.6 2020-11-23	54.4 2020-10-23	▼ -0.8
PMI (svc)	index	41.3 2020-11-23	46.2 2020-10-23	▼ -4.9
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	-0.06 2020-11-01	0 2020-10-01	▼ -0.06

Japan

Indicator	Basis	2020-11	2020-10	Change
Core CPI	% YoY	-0.4 2020-11-20	-0.3 2020-10-23	→ -0.1
CPI (YoY)	% YoY	-0.4 2020-11-20	0 2020-10-23	▼ -0.4
FX vs USD	px	104.08 2020-11-30	104.55 2020-10-30	→ -0.47
GDP	% YoY	not recorded
PMI (mfg)		not recorded
Policy rate	%	not recorded
Unemployment	%	not recorded
10Y yield	%	0.03 2020-11-01	0.04 2020-10-01	→ -0.01

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

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.

● 1 active

Euro area

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

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.

○ no change

Mechanisms & channelsL2

United States

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 55.4 → 59.3 (+3.9)

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

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 51.4 → 52.1 (+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).

Euro area

M5Growth acceleration (expansionary PMI)

Trigger: pmi_mfg: 54.4 → 54.8 (+0.4)

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)	1.18	1.40	-0.22 ▼	2020-11-01
Core CPI	0.25	0.20	+0.05 ▬	2020-11-01
Core PCE	1.45	1.50	-0.05 ▬	2020-11-01
Policy rate	0.25	0.25	+0.00 ▬	2020-11-08
GDP	33.10	4.60	+28.50 ▲	2020-10-29
PMI (mfg)	59.30	55.40	+3.90 ▲	2020-11-02
PMI (svc)	56.60	57.80	-1.20 ▼	2020-11-04
Unemployment	6.90	6.70	+0.20 ▲	2020-11-06
10Y yield	0.83	0.79	+0.04 ▬	2020-11-06
2Y yield	0.16	0.14	+0.02 ▬	2020-11-06
2s10s slope	0.67	0.65	+0.02 ▬	2020-11-06
FX vs USD	92.23	92.53	-0.30 ▬	2020-11-06

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	1.70	2.40	-0.70 ▼	2020-10-15
Policy rate	3.85	3.85	+0.00 ▬	2020-10-20
GDP	4.90	3.20	+1.70 ▲	2020-10-19
PMI (mfg)	52.10	51.40	+0.70 ▲	2020-11-01
PMI (svc)	56.20	55.90	+0.30 ▲	2020-10-31
Unemployment	5.20	5.30	-0.10 ▬	2020-11-01
10Y yield	3.21	3.19	+0.02 ▬	2020-11-06
2Y yield	2.93	2.89	+0.04 ▬	2020-11-06
2s10s slope	0.28	0.30	-0.02 ▬	2020-11-06
FX vs USD	6.61	6.65	-0.05 ▬	2020-11-06

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	-0.30	-0.30	+0.00 ▬	2020-10-30
Policy rate	0.00	0.00	+0.00 ▬	2020-10-29
GDP	0.20	0.10	+0.10 ▬	2020-10-30
PMI (mfg)	54.80	54.40	+0.40 ▲	2020-11-02
PMI (svc)	46.90	46.20	+0.70 ▲	2020-11-04
Unemployment	8.30	8.10	+0.20 ▲	2020-10-30
10Y yield	-0.06	0.00	-0.06 ▼	2020-11-01
FX vs USD	1.18	1.17	+0.01 ▬	2020-11-06

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.00	0.20	-0.20 ▼	2020-10-23
Core CPI	-0.30	-0.40	+0.10 ▲	2020-10-23
Policy rate	-0.10	-0.10	+0.00 ▬	2020-10-29
GDP	n/a
PMI (mfg)	n/a
Unemployment	3.00	3.00	+0.00 ▬	2020-10-30
10Y yield	0.03	0.04	-0.01 ▬	2020-11-01
FX vs USD	103.60	104.44	-0.84 ▼	2020-11-06

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.