What if China slides back into outright deflation?
A China deflation relapse (negative CPI, 10th straight deflator drop) is a demand-deficiency signal: copper, Alibaba and the China-growth proxies lead lower, AUD and oil demand soften, global inflation expectations get dragged down. Rhymes with Japan's post-1998 deflation entrenchment more than any acute crash. Forward angle: exported deflation is the cross-asset kicker, cheap Chinese goods cap DM goods CPI, a disinflationary tailwind for DM bonds even as it crushes EM manufacturer margins, this is mixed, not pure risk-off.
how we built this number — every step
The class rate is measured from our dated, sourced event library (decade-normalized Poisson — the full table is public at base_rates.json). The variant’s share within its class is the analyst’s editorial call, published so you can audit it. A wider range means thinner precedent. Full recipe: methodology · scored at Reality Check.
The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (gold) over time vs the crowd's (Polymarket, blue), from the past toward the 0–6 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. The gold path is an illustrative reconstruction anchored to today's estimate — real dated events, not a live re-estimate history.
What it would mean
If this plays out, it is a mixed shock. After CPI briefly turned positive, China slides back into outright deflation with CPI negative and the GDP deflator falling for a tenth straight quarter. The trigger decomposes into signed root‑shocks — China growth ▼ · Inflation surprise ▼ — which propagate through our causal graph to the markets below.
If it happens — the markets it would move
Biggest moves first. Projected moves are cascade-model priors; hist A–B% = what comparable past events actually did (measured abnormal returns), and model prior · unmeasured marks markets with no analogue backing yet. Tap any market for its price history.
| Market | Class | Projected move | |
|---|---|---|---|
| 1 | Freeport (copper) FCX 📈 chart | Equity | ▼ -0.8% hist -4.06–+1.14% · other way +2.69% (n=11) |
| 2 | Copper XCUon Hyperliquid 📈 chart | Commodity | ▼ -0.7% hist -0.95–-0.01% · other way +2.18% (n=11) |
| 3 | China internet KWEBon Hyperliquid 📈 chart | Equity | ▼ -0.6% hist -1.26–+0.14% · other way -2.73% (n=10) |
| 4 | Alibaba BABAon Hyperliquid 📈 chart | Equity | ▼ -0.6% hist -0.74–+0.68% · other way -0.35% (n=10) |
| 5 | Aussie dollar AUD 📈 chart | FX | ▼ -0.3% hist -0.48–+-0.0% · other way -0.57% (n=11) |
| 6 | Tech sector XLK 📈 chart | Equity | ▲ +0.4% hist +0.11–+0.25% · other way -0.38% (n=11) |
| 7 | Chinese yuan CNY 📈 chart | FX | ▼ -0.3% hist -0.37–-0.01% · other way -0.2% (n=11) |
| 8 | Gold XAUon Hyperliquid 📈 chart | Commodity | ▲ +0.4% hist -0.39–+1.76% · other way -0.45% (n=11) |
| 9 | 30y Treasury yield DGS30 📈 chart | Rate | ▼ -3bp hist -7.12–+1.25% · other way +19.7% (n=12) |
| 10 | 10y Treasury yield DGS10 📈 chart | Rate | ▼ -3bp hist -6.34–+1.07% · other way +22.8% (n=12) |
| 11 | MicroStrategy MSTRon Hyperliquid 📈 chart | Equity | ▲ +0.3% hist -0.39–+1.24% · other way +6.92% (n=11) |
| 12 | Nasdaq 100 NDXon Hyperliquid 📈 chart | Index | ▲ +0.3% hist -1.0–+0.44% · other way -0.54% (n=11) |
| 13 | Bitcoin BTCon Hyperliquid 📈 chart | Crypto | ▲ +0.2% hist -4.4–+1.47% · other way +2.51% (n=10) |
| 14 | Arm ARMon Hyperliquid 📈 chart | Equity | ▲ +0.2% hist -6.44–+1.29% · other way -7.39% (n=9) |
Probable recommendation
Why we may diverge from history
Trust the cascade short on DGS10/DGS30: the +10.8% realized leans on noisy China-FX windows (yuan record-low, Pelosi-Taiwan) that are off-channel for US duration — renewed China deflation exports disinflation, pulling US yields down.
Historical precedent — what analogous events actually did
Across 40 analogous events (overlap‑weighted), as abnormal returns — market beta stripped, so it's the event's own effect, not the market backdrop. Shown at 20 days (persistent) and 5 days (immediate); ↺ fades = the two horizons disagree. Confidence = consistency × sample × significance.
| Asset | History says | Abnormal (20d · 5d) | Hit | n | Confidence | vs cascade |
|---|---|---|---|---|---|---|
| ARM ARM | SHORT | -5.5% · 5d -6.0% | 72% | 23 | 0.30 | ⚠ differs |
| Gold XAU | LONG | +1.4% · 5d +0.4% | 63% | 36 | 0.20 | ✓ matches cascade |
| NDX NDX | SHORT | -1.0% · 5d -1.4% | 62% | 40 | 0.19 | ⚠ differs |
| Bitcoin BTC | SHORT | -4.1% · 5d -4.4% | 63% | 36 | 0.19 | ⚠ differs |
| HOOD HOOD | LONG | +1.5% · 5d -3.9% ↺ fades | 60% | 28 | 0.18 | ✓ matches cascade |
| XCU XCU | SHORT | -0.6% · 5d -1.1% | 61% | 36 | 0.17 | ✓ matches cascade |
| KWEB KWEB | SHORT | -0.9% · 5d -1.0% | 59% | 36 | 0.17 | ✓ matches cascade |
| US dollar DXY | LONG | +0.3% · 5d -0.1% ↺ fades | 59% | 40 | 0.15 | ⚠ differs |
| AUD AUD | SHORT | -0.3% · 5d -0.4% | 59% | 36 | 0.14 | ✓ matches cascade |
| Volatility VIX | SHORT | -1.4% · 5d -0.7% | 57% | 38 | 0.13 | · |
| FCX FCX | SHORT | -3.4% · 5d -2.1% | 57% | 38 | 0.12 | ✓ matches cascade |
| High-yield credit HYG | SHORT | -0.1% · 5d +0.2% ↺ fades | 57% | 36 | 0.10 | · |
| XHB XHB | SHORT | -1.2% · 5d -1.2% | 55% | 36 | 0.08 | ⚠ differs |
| CNY CNY | SHORT | -0.2% · 5d -0.2% | 53% | 36 | 0.06 | ✓ matches cascade |
Why this probability
China deflation entrenched mid-2026; CPI relapse and falling deflator is the live base case. A base‑rate‑anchored prior, continuously scored against what actually happens — not a forecast.