

AXIOMA ROOF™ SCORE HIGHLIGHTS
WEEK OF JUNE 9, 2025
Potential triggers for sentiment-driven market moves this week
- US: CPI and PPI reports, and consumer sentiment survey.
- Europe: UK GDP growth rate for April, labor market data, and the Spending Review. Eurozone industrial production data and Germany’s wholesale prices.
- APAC: China CPI and PPI reports, and foreign trade figures. Japan Q1 GDP (final). Australian business and consumer confidence indicators.
- Global: Potential Israeli government collapse. Fate of the US-Iran nuclear deal. US-China trade negotiations and the potential unclogging of the rare earth minerals and magnets shipments to the US (and Europe?).
Insights from last week's changes in investor sentiment:
Investor sentiment marginally improved last week as we start the final month of the tariff pause before the July 9 deadline for trading partners to negotiate a deal with the Trump administration. The US' two thorniest trading relationships, the EU and China, remain engaged in negotiations, but their inconsistent progress keeps investors uncertain. However, four markets - Australia, Global Emerging Markets, China, and the UK - are experiencing a positive imbalance where the demand for risk significantly exceeds the supply, supporting further short-term market gains. Elsewhere, sentiment will remain influenced by the rapidly evolving geopolitical situation on trade and military conflicts.
Trade deals: Two months ago, the first pause in the US’ trade war with, well, everyone, promised “90 deals in 90 days” according to White House trade adviser Peter Navarro. Two months into this pause and only one deal (with the UK) has been signed. Negotiations with the EU and China have had a rocky start but all parties seem back at the table as of last Friday. Both the EU and China will want more details on the so-called ‘Revenge Tax’ targeting foreigners with U.S. investments, including multinational companies operating in the U.S., imbedded in Trumps’ Big Beautiful Bill as it makes its way through the Senate. Meanwhile Trump has doubled the tariffs on steel imports and China has put a stranglehold on rare earth magnet shipments, threatening manufacturing activity in both the US and Europe. In short, with only 30 days left, unless TACO strikes again, negotiators have a long way to go and a short time to get there.
Iran: Under the Trump administration, America’s soft power has hardened and its hard power has softened, leaving poor and powerless countries without aid and potentially nefarious ones without deterrence and playing for time. As Trump’s two-months deadline for a new nuclear deal with Iran nears, negotiations seem at an impasse and (as of this writing) no further meetings are on the calendar despite Trump’s insistence that the two sides were "very close to a solution" and that a deal could be announced within a week. That was ten days ago.
Meanwhile, in Israel, the governing coalition of Prime Minister Benjamin Netanyahu is collapsing following the departure of two of the country’s ultra-Orthodox parties. The centrist opposition has already filed a motion to dissolve the Knesset with a vote set for this Wednesday, June 11th, which is likely to succeed and trigger a general election by November. Netanyahu’s precarious legal situation means he needs to win this vote and stay in power to stay out of jail. Will he seek a military distraction à la George W. Bush? Israel had given the US assurances that it will not attack Iran without the US’ blessing and the US had asked Netanyahu’s government for more time to reach a diplomatic solution. This was before Netanyahu’s coalition collapsed.
Investor sentiment and markets will remain captive to the US’ trade negotiations with the EU and China, and to the potential for military escalation between Israel and Iran as Trump’s two months deadline to a nuclear deal nears (the first meeting between the two sides was on April 12). On the US-China trade talks, Europe will be watching for any agreement made between the two countries at the expense of Europe. Meanwhile China has warned Europe (via the withholding of rare earth magnets) that it will react forcefully if Europe makes a deal with the US at China’s expense. The US for its part, has made it clear to the EU that it wants it to choose the US’ side in its trade war with China. Let’s play Circular Geopolitical Trade War…
With the exception of the US and China, global markets have all recovered from Liberation day to reach new year-to-date highs. Investor sentiment is now either bullish, positive, or neutral (see table below). Given this positive net balance in the demand for risk among investors, a sharp drawdown overreaction is unlikely but the stakes (a trade war and an actual war) could not be higher. Still, for this rally to go on, investors will need to see “TACO II - the Sequel”, as the deadlines of TACO I come to pass.

Note: green background = bullish, red background = bearish
Changes to investor sentiment over the past 180 days for the markets we follow:
How to Interpret These Charts:
Top Charts:
The top charts illustrate the ROOF ratio, which represents investor sentiment. This ratio is depicted in green on the left axis, while the cumulative returns of the underlying market are shown in black on the right axis. Key reference lines include:
- A horizontal red line at -0.5 (left axis), marking the threshold between negative sentiment (-0.2 to -0.5) and bearish sentiment (< -0.5).
- A horizontal blue line at +0.5 (left axis), indicating the boundary between positive sentiment (+0.2 to +0.5) and bullish sentiment (> +0.5).
- A horizontal grey line at 0.0 (left axis), around which sentiment is considered neutral (-0.2 to +0.2).
Bottom Charts:
The bottom charts display the levels of risk tolerance (green line) and risk aversion (red line) within the market, representing investors' demand and supply for risk, respectively. Key insights include:
- When risk tolerance (green line) exceeds risk aversion (red line), more investors are willing to buy risk assets than there are investors willing to sell them at the current price. This scenario forces risk-tolerant investors to offer a premium to entice more risk-averse investors to trade, thereby driving markets upward.
- Conversely, when risk aversion (red line) surpasses risk tolerance (green line), the market dynamics reverse.
The net balance between risk tolerance and risk aversion levels is used to compute the ROOF ratio shown in the top charts, reflecting the sentiment of the average investor in the market.
Blue Shaded Zone:
The blue shaded zone between levels 3 and 4 for both indicators signifies a reasonable balance between the supply and demand for risk in the market. When both lines remain within this blue zone, the market is considered ‘emotionally’ stable. However, when both lines move outside this zone, the significant imbalance in demand and supply for risk can lead to overreactions to unexpected news or risk events.




















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