AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: FOMC meeting and ongoing (lack of) negotiations on the government shutdown. Big earnings week with Big Tech in focus, including Microsoft, Apple, Amazon, Meta and Alphabet alongside Visa, UnitedHealth Group, NextEra Energy, Booking, Caterpillar, Verizon, Boeing, Eli Lilly, Mastercard, Merck, Exxon Mobil, AbbVie and Chevron.
• Europe: ECB monetary policy meeting and flash Q3 GDP figures for Germany, France, Italy, and Spain. Germany’s business and consumer climate indexes and retail sales data.
• APAC: China PMI data. Japan’s BoJ interest rate decision meeting, Tokyo CPI, unemployment, industrial production, consumer confidence, retail sales, and housing starts data.
• Global: US-China trade negotiations and the Trump-Xi meeting will dominate investor sentiment this week – we heard positive news over the weekend.

Investor sentiment kept drifting away from market performance last week. Fear of renewed US-China trade tensions weighed on sentiment, while markets shrugged off geopolitics and surged ahead on strong economic data and corporate earnings. By Friday, sentiment was negative in six markets (Asia ex-Japan, China, Global EM, Europe, Japan, US), neutral in three (Global DM, Global DM ex-US, UK), and positive only in Australia—boosted by rising gold prices and warmer US ties. Weekend headlines brought relief: progress on US-China trade talks, Milei’s strong local election showing (securing a US lifeline), and neutral US inflation data. Together, these should spark a sentiment rebound this week, reinforcing market momentum.

Since Trump’s return, the script hasn’t changed: months of stop-start geopolitical drama and tariff threats keep investors on edge, yet unwilling to act on their fears—betting Trump will ultimately prevail. This dynamic has fueled a global divergence since early August: sentiment sliding while markets climb (see charts). Sentiment grew increasingly hesitant while markets kept wanting to press forward, not stop or revisit the validity of decisions made and courses charted since April 9.

US-China Relations: Trump’s top priority this week was to de-escalate the trade war and avoid implementing his “retaliatory” 100% tariff on China scheduled for November 1.  Boarding Air Force One for his “Thrilla in South Korea” (doesn’t quite have the same ring, does it?), Trump told reporters he wished to make a deal with Xi covering “rare earth, soybeans, Russia, maybe even nuclear – everything”. Trump wished all this in roughly the time it took to answer a reporter’s question, one wish gliding naturally into the next, unimpeded by plausibility, or the fear of some cosmic retaliation for an arrogant wish. He knew then not to detail his logic to nosey reporters who are not above pointing out where it was flawed.

As of Monday morning, reports suggest negotiations are progressing well, with both sides having “reached a basic consensus on arrangements to address their respective concerns” (because ambiguity beats detail every time). Markets will cheer de-escalation, sentiment will exhale, and likely reverse course. The US expects rare earth shipments (a possible one-year pause on export controls, conveniently ending before midterms) and large soybean orders. What did China get? No details yet - and it’s hard to imagine Beijing conceding without extracting something, given its leverage over rare earth magnets and their impact on US manufacturing.

This week also brings interest rate decisions from the Fed, ECB, BoJ, and Bank of Canada—though no surprises are expected, as markets have priced in the next two moves. Add Big Tech earnings (Microsoft, Apple, Amazon, Meta, Alphabet) to the mix, and alongside positive geopolitical news, investors may conclude their earlier fears were overblown. With no clear reason to sell and signs of a thaw in US-China relations, only one hurdle remains: the ongoing US government shutdown - Trump’s next week’s To-Do.

Note: green background = bullish, red background = bearish

Changes to investor sentiment over the past 180 days for the ten 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.