AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: CPI and PPI data.
• Europe: ECB and Swiss National Bank interest rate decisions (-25bps expected for both). Eurozone industrial activity for October. Germany’s balance of trade. Romania’s Presidential runoff election.
• APAC: China CPI and PPI data and the annual Central Economic Work Conference (CEWC). RBA interest rate decision, unemployment and business confidence data in Australia. Japan Q3 GDP (final) and the Tankan report. Unfolding events in South Korea’s impeachment proceedings.
• Global: Further instability in the Middle-East. Any tweets from Donald Trump on Monday, and Tuesday, and Wednesday, and Thursday, and Friday.

Last week, sentiment in the US and Europe improved from negative to neutral, lifting the mood of Global Developed Markets investors. However, sentiment in Global Emerging Markets and Asia ex-Japan remained bearish as investors awaited further clarification on the new US administration’s trade policies. Japanese investors stayed bullish, though less so than in previous weeks, and have struggled to convert this risk-tolerant sentiment into market gains for the past two months. In China, sentiment remained neutral ahead of this week’s annual Central Economic Work Conference (CEWC). UK investors also remained neutral, with sentiment dampened by uncertainty over the current PM’s low popularity and a lack of details on Trump’s plans for tariffs on UK exports.

The certainty brought by the US election results (a red wave) has paradoxically increased uncertainty for investors. They are now compelled to make semi-informed investment decisions with minimal data, sometimes relying on just a name (e.g., Paul Atkins). As for geopolitics, individual leaders have become islands, shouting threats to each other across seas of misunderstanding. The French government has collapsed, Germany’s ‘ist kaput’, the recently elected Prime Ministers of both the UK and Japan have popularity ratings that make them most likely to be eaten first in any lifeboat situation, and no one seems able to close Pandora’s box in the Middle East or Ukraine. 

Welcome to the era of subjectivity – feel free to make it your own.

Currently, in the period between the US election results and Trump’s inauguration on January 21st, the paranoiacs seem to have it right - seeing conspiracies and hidden agendas connecting all the dots. RFK as Secretary of Health and Human Services? Sell vaccine makers. Paul Atkins as SEC Chairman? Buy Bitcoin. Talk of across-the-board tariffs? Overweight US and underweight Europe and the rest of the world. Nowadays, investors are making decisions based not even on book’s cover, but just the title.

Once Trump takes office and starts to govern, the nihilists might have their turn - that there is no signal in the noise, only chaos and randomness. His transactional governing style, combined with his aversion to silence and inaction, will create a continuous stream of risk events for investors to react to. Add to this a media industry focused on ratings and clickbait, which shifts politicians’ obligations from being right to simply being entertaining, and the growing use of social media as a primary information source, and you get an investment environment requiring a very short attention span.

Neither paranoia nor nihilism is a state of mind that investors can endure for long, but in this new era of subjectivity, they may be forced to repeatedly alternate between them. Meanwhile the low volatility readings (Vix below 13%!) make a mockery of the uncertainty level associated with current situation.