Macro Intelligence · Weekly · deep read

Macro Regime — 2025-W04

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

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↩ Home Macro index ← 2025-01 board

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

Standing macro backdropBORROWED

Borrowed from its month (2025-01); the weekly reads the standing object, it does not recompute the aggregate.

United States: overheating / late-cycle
China: deflation watch
Euro area: disinflationary stall
Japan: overheating / late-cycle

month aggregated actuals

United States

Indicator	Basis	2025-01	2024-12	Change
Core CPI	% MoM	0.43 2025-01-01	0.19 2024-12-01	▲ 0.24
Core PCE	% YoY	2.78 2025-01-01	2.99 2024-12-01	▼ -0.21
CPI (YoY)	% YoY	2.99 2025-01-01	2.87 2024-12-01	▲ 0.12
FX vs USD	px	108.37 2025-01-31	108.49 2024-12-31	→ -0.12
GDP	% QoQ ann.	-0.6 2025-01-01	—	—
PMI (mfg)	index	49.3 2025-01-03	48.4 2024-12-02	▲ 0.9
PMI (svc)	index	54.1 2025-01-07	52.1 2024-12-04	▲ 2
Policy rate	%	4.5 2025-01-31	4.5 2024-12-31	→ 0
2s10s slope	pp	0.36 2025-01-31	0.33 2024-12-31	→ 0.03
Unemployment	%	4 2025-01-01	4.1 2024-12-01	→ -0.1
10Y yield	%	4.58 2025-01-31	4.58 2024-12-31	→ 0
2Y yield	%	4.22 2025-01-31	4.25 2024-12-31	→ -0.03

China

Indicator	Basis	2025-01	2024-12	Change
CPI (YoY)	% YoY	0.1 2025-01-09	0.2 2024-12-09	→ -0.1
FX vs USD	px	7.18 2025-01-31	7.3 2024-12-31	→ -0.12
GDP	% YoY	5.4 2025-01-17	—	—
PMI (mfg)	index	49.1 2025-01-01	50.1 2024-12-01	▼ -1
PMI (svc)	index	50.2 2025-01-27	52.2 2024-12-31	▼ -2
Policy rate	% (1Y LPR)	3.1 2025-01-20	3.1 2024-12-20	→ 0
2s10s slope	pp	0.38 2025-01-27	0.54 2024-12-31	▼ -0.16
Unemployment	%	5.2 2025-01-01	5.1 2024-12-01	→ 0.1
10Y yield	%	1.63 2025-01-27	1.68 2024-12-31	→ -0.05
2Y yield	%	1.25 2025-01-27	1.14 2024-12-31	▲ 0.11

Euro area

Indicator	Basis	2025-01	2024-12	Change
CPI (YoY)	% YoY	2.4 2025-01-17	2.2 2024-12-18	▲ 0.2
FX vs USD	px	1.04 2025-01-31	1.04 2024-12-31	→ -0
GDP	% YoY	0.4 2025-01-17	-0.3 2024-12-18	▲ 0.7
PMI (mfg)	index	46.1 2025-01-24	45.2 2024-12-16	▲ 0.9
PMI (svc)	index	51.4 2025-01-24	51.4 2024-12-16	→ 0
Policy rate	%	2.9 2025-01-30	3.15 2024-12-12	▼ -0.25
Unemployment	%	6.3 2025-01-30	6.3 2024-12-02	→ 0
10Y yield	%	3.09 2025-01-01	2.81 2024-12-01	▲ 0.28

Japan

Indicator	Basis	2025-01	2024-12	Change
Core CPI	% YoY	1.6 2025-01-24	1.7 2024-12-20	→ -0.1
CPI (YoY)	% YoY	3.6 2025-01-24	2.9 2024-12-20	▲ 0.7
FX vs USD	px	154.1 2025-01-31	156.99 2024-12-31	▼ -2.9
GDP	% YoY	2.25 2025-01-01	—	—
PMI (mfg)		not recorded
Policy rate	%	0.5 2025-01-24	0.25 2024-12-19	▲ 0.25
Unemployment	%	2.5 2025-01-31	2.5 2024-12-27	→ 0
10Y yield	%	1.25 2025-01-01	1.09 2024-12-01	▲ 0.15

ThesisL0

(historical week — no Claude narration run)

Standing pictureL1

United States

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.

● 2 active

China

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

Euro area ⚠ stale

disinflationary stall

contraction · at target · easing

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.

● 3 active

Japan ⚠ stale

overheating / late-cycle

unknown · above target · tightening

● 3 active

Mechanisms & channelsL2

United States

M2Inflation surprise (downside / disinflation)

Trigger: core_cpi: 0.43 → 0.2 (-0.23)

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).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 48.4 → 49.3 (+0.9)

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

M6Growth slowdown (deepening contraction)

Trigger: pmi_mfg: 50.1 → 49.1 (-1)

Manufacturing PMI is below 50 and still falling.
Why: Below 50 means more firms are contracting than expanding; *falling* means the contraction is deepening, not bottoming — that combination is what leads earnings revisions down.
Investors rotate toward defensives and government bonds.
Why: When growth is deteriorating, steady-demand sectors (staples, utilities, healthcare) hold earnings better, and government bonds act as a hedge that rallies if the slowdown deepens further.
Cyclicals, small-caps, EM and industrial commodities underperform.
Why: These are geared to the physical cycle and to leverage, so worsening activity hits their earnings and risk appetite hardest; commodity demand softens with industrial output.

Helps
defensive sectors (staples, utilities, healthcare)long government bondsquality/large-cap

Hurts
cyclicalssmall-capsEM equityindustrial commodities

Caveat: A shallow dip just below 50 that quickly reverses ('soft patch') doesn't trigger the full defensive rotation; the level must persist.

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.

Euro area

M3Monetary easing (rate cut)

Trigger: policy_rate: 3.4 → 3.15 (-0.25)

The central bank cuts its policy rate.
Why: The policy rate anchors the entire rate structure, so a cut lowers the risk-free baseline against which every asset is valued.
Discount rates fall across asset classes and liquidity expectations rise.
Why: A lower risk-free rate raises the present value of future cash flows everywhere, and a cut signals the bank will keep conditions loose.
Risk assets re-rate up; the currency softens.
Why: Cheaper money flows toward higher-returning assets, and a lower local rate narrows the yield advantage of holding the currency, so it weakens.
The weaker currency lifts exporters, commodities, gold, and EM.
Why: Commodities priced in the easing currency rise in that currency; exporters gain competitiveness; and EM borrowers with dollar debt benefit as the dollar softens.

Helps
equities (broadly)goldEM assetslong-duration bondscommodities

Hurts
the easing currencycash/money-market real yield

Caveat: If the cut is an emergency response to a fast-deteriorating outlook ('cutting into a recession'), equities can fall even as bonds rally — the growth signal outweighs the liquidity boost.

House-view hook — empty (textbook default; Stephen's view bakes in here).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 2.81234 → 3.08796 (+0.275613)

⚠ Fired on a stale print: yield_10y as of 2025-01-01 (25d old). The change may predate current conditions — treat as provisional.

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yield raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

Caveat: Granularity is daily, so a single-session jump can be noise; a sustained multi-session move is the real signal. Distinguish a growth-driven rise (risk-on) from a supply/term-premium rise (risk-off).

House-view hook — empty (textbook default; Stephen's view bakes in here).

M13Contraction easing (sub-50 PMI, rising)

Trigger: pmi_mfg: 45.1 → 46.1 (+1)

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)

House-view hook — empty (textbook default; Stephen's view bakes in here).

Japan

M4Monetary tightening (rate hike)

Trigger: policy_rate: 0.25 → 0.5 (+0.25)

The central bank raises its policy rate.
Why: It lifts the risk-free baseline and signals an intent to drain liquidity to cool demand or inflation.
Discount rates rise; the most rate-sensitive assets are hit first.
Why: A higher risk-free rate lowers the present value of future cash flows, and long-duration growth, long bonds, and non-yielding gold have the most distant or rate-sensitive payoffs.
The currency firms; exporters and dollar-debt EM borrowers are pressured.
Why: A wider yield advantage pulls in capital and strengthens the currency, which hurts exporters' competitiveness and raises the real burden on dollar-denominated EM debt.

Helps
the tightening currencycash/short-duration real yieldbanks (early-cycle)

Hurts
long-duration growth equitieslong-dated bondsgoldEM assets

Caveat: Late in a hiking cycle, a hike can paradoxically rally bonds if the market reads it as the last one and pulls forward the eventual cuts.

House-view hook — empty (textbook default; Stephen's view bakes in here).

M9Long-end yield spike / term-premium rise

Trigger: yield_10y: 1.09 → 1.245 (+0.155)

⚠ Fired on a stale print: yield_10y as of 2025-01-01 (25d old). The change may predate current conditions — treat as provisional.

The 10-year yield jumps.
Why: The long yield sets the cost of long-term money for the whole economy and the discount rate for the longest cash flows.
The discount rate on all long-dated cash flows rises.
Why: Equity valuations and long-bond prices are present values of distant cash flows; a higher long yield shrinks those present values.
Long-duration growth equities compress, long bonds fall, gold is pressured.
Why: The longest-duration assets are most exposed to the discount-rate move, and a higher real yield raises the opportunity cost of holding non-yielding gold.

Helps
banks/insurers (reinvestment)cashvalue over growth

Hurts
long-duration growth equitieslong-dated bondsgoldrate-sensitive REITs/utilities

House-view hook — empty (textbook default; Stephen's view bakes in here).

M12BOJ normalization / yen-carry risk

Trigger: policy_rate: 0.25 → 0.5 (+0.25)

The BOJ hikes away from its zero/negative-rate regime.
Why: Japan was the world's last anchor of ultra-cheap funding; raising its rate narrows the gap that made the yen the preferred currency to borrow in.
JGB yields rise and the yen tends to strengthen.
Why: Higher policy rates pull Japanese government bond yields up, and a higher yield plus repatriation flows increase demand for yen.
Yen-funded carry tradescarry 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. unwind, transmitting volatility into global risk assets.
Why: Investors who borrowed cheap yen to buy higher-yielding assets abroad face higher funding costs and a rising yen on their debt, forcing them to sell those assets — so the shock spreads well beyond Japan.

Helps
JPYJapanese banksyen-based savers

Hurts
JGBs (yields up)yen-funded carry tradesglobal risk assets (on a disorderly unwind)

Caveat: A small, well-telegraphed hike may be absorbed smoothly; the global-risk transmission only bites on a surprise move or a disorderly carry unwind.

House-view hook — empty (textbook default; Stephen's view bakes in here).

The dataL3

United States

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.90	2.99	-0.09 ▬	2025-01-15
Core CPI	0.20	0.43	-0.23 ▼	2025-01-15
Core PCE	2.78	2.80	-0.02 ▬	2025-01-01
Policy rate	4.50	4.50	+0.00 ▬	2025-01-26
GDP	-0.60	3.10	-3.70 ▼	2025-01-01
PMI (mfg)	49.30	48.40	+0.90 ▲	2025-01-03
PMI (svc)	54.10	52.10	+2.00 ▲	2025-01-07
Unemployment	4.10	4.00	+0.10 ▬	2025-01-10
10Y yield	4.63	4.65	-0.02 ▬	2025-01-24
2Y yield	4.27	4.29	-0.02 ▬	2025-01-24
2s10s slope	0.36	0.36	+0.00 ▬	2025-01-24
FX vs USD	107.44	108.05	-0.61 ▼	2025-01-24

China

Indicator	Current	Prior	Δ	As of
CPI (YoY)	0.10	0.20	-0.10 ▬	2025-01-09
Policy rate	3.10	3.10	+0.00 ▬	2025-01-20
GDP	5.40	4.60	+0.80 ▲	2025-01-17
PMI (mfg)	49.10	50.10	-1.00 ▼	2025-01-01
PMI (svc)	52.20	50.00	+2.20 ▲	2024-12-31
Unemployment	5.20	5.10	+0.10 ▲	2025-01-01
10Y yield	1.65	1.66	-0.00 ▬	2025-01-26
2Y yield	1.32	1.30	+0.01 ▬	2025-01-26
2s10s slope	0.34	0.36	-0.02 ▬	2025-01-26
FX vs USD	7.29	7.27	+0.01 ▬	2025-01-24

Euro area

Indicator	Current	Prior	Δ	As of
CPI (YoY)	2.40	2.40	+0.00 ▬	2025-01-17
Policy rate	3.15	3.40	-0.25 ▼	2024-12-12
GDP	0.40	0.40	+0.00 ▬	2025-01-17
PMI (mfg)	46.10	45.10	+1.00 ▲	2025-01-24
PMI (svc)	51.40	51.60	-0.20 ▬	2025-01-24
Unemployment	6.30	6.30	+0.00 ▬	2025-01-07
10Y yield	3.09	2.81	+0.28 ▲	2025-01-01 ⚠⚠
FX vs USD	1.04	1.04	+0.00 ▬	2025-01-24

Japan

Indicator	Current	Prior	Δ	As of
CPI (YoY)	3.60	2.90	+0.70 ▲	2025-01-24
Core CPI	1.60	1.70	-0.10 ▬	2025-01-24
Policy rate	0.50	0.25	+0.25 ▲	2025-01-24
GDP	n/a
PMI (mfg)	n/a
Unemployment	2.50	2.50	+0.00 ▬	2024-12-27
10Y yield	1.25	1.09	+0.15 ▲	2025-01-01 ⚠⚠
FX vs USD	156.15	156.44	-0.29 ▬	2025-01-24

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.