AXIOMA ROOF™ SCORE HIGHLIGHTS

With the second-quarter earnings season drawing to a close, investors’ attention will swing back from corporate results to the macroeconomic and geopolitical front. That puts monetary policy, trade wars, and the war with Iran back on the front page. Last week’s secondary sanctions on Iran and its economic supporters were an insult to Swiss cheese and another display of the Trump administration’s preferred foreign-policy doctrine: speak loudly, carry a small stick, and hope nobody notices. China noticed. Beijing threatened to retaliate if the secondary sanctions were applied to Chinese companies, especially its banks. The White House, for now, stopped short of targeting either. With Xi's US visit penciled in for September 24, it seems even trade wars have diaries.

Sentiment improved last week, which is not the same thing as investors deciding that the week ahead is safe. The aggregate ROOF score moved back to -0.09 from -0.26 a week earlier and -0.44 a month ago, leaving risk tolerance and risk aversion roughly balanced across the ten markets we track. That is a clear improvement in the balance of revealed preference, and the weekly move confirms the monthly repair. It also leaves investors in the part of the map where every signpost points both ways. Neutral sentiment is useful because it tells us that neither side currently has enough emotional capital to dominate the next move. It is less useful because emotional capital has a distressing habit of applying for emergency funding after the event.

The cleaner story is the composition shift. A month ago, eight of the ten markets we track sat in Negative or Bearish territory, with only one in Positive and none in Bullish. Now, the risk-on side has gained two markets and the risk-off side has lost four. That is material regime migration, not table decoration. Sentiment among investors in DM ex-US and EM improved materially over the month, APAC ex-JP investors also moved materially in the same direction, and even sentiment among Chinese investors, still bearish at -0.85, is no longer deteriorating at last month’s pace. Sentiment among UK investors is now bullish at +0.55, while Australian and DM ex-US investors are positive. The old defensive crouch has not disappeared, but it has stopped pretending to be a policy framework.

The catch is that the repair remains uneven and, in several places, fragile. Cross-market dispersion is mid-range at the 63rd percentile of its history, little changed from 61st a week ago and down from 73rd a month ago. Investors are converging somewhat, but not enough to claim that a single common driver has restored confidence everywhere. US investors’ risk appetite is still negative at -0.40 and was little changed over both the past week and month. Sentiment among DM investors is also negative at -0.46, close enough to the bearish threshold that the label offers less comfort than the boundary table implies. Japanese investors remain bearish at -0.62, and China remains the weakest reading in our investment universe. The balance has improved, but it has improved the way a committee improves: the minutes move first.

Japan deserves the separate line because the sentiment configuration now matches the macro discomfort too neatly to ignore. The government is trying to cap long bond yields while investors short the currency, a policy mix that asks the market to believe in discipline and liquidity at the same time. Sentiment among Japanese investors remains bearish, but the weekly change of +0.33 leans against a monthly deterioration of -0.24, and the positive weekly sign has held for three observations, adding +0.20 to the ROOF score. That is an early upturn configuration. It says sentiment may be turning; it does not say the carry trade has been pardoned. Liquidity crises rarely arrive wearing name badges, but they do tend to introduce themselves twice.

This week’s data calendar gives investors plenty of material with which to respectably launder their existing view. The US jobs report does most of the heavy lifting on Friday, leaving the earlier part of the week short of macro guidance and long on interpretation. Eurozone inflation and unemployment will tell investors what the ECB is likely to consider next, which is not always the same as what investors wish it would conclude. China’s PMI data will show how much damage geopolitics is doing to activity, or how much activity is still willing to deny the damage. Japan adds retail sales, unemployment, industrial production, and consumer confidence to a market already balancing monetary control against currency pressure. Meanwhile, the war with Iran has returned to the kinetic phase. US strikes on Iranian launchers on Larak Island over the weekend were met by Iranian attacks on US positions in Jordan, ending a month of relative military quiet. Brent crude opened roughly 2.5% higher on Monday morning. Investors may spend the week debating labor markets, inflation, and central banks, but the oil market has already cast its vote on what it considers worth watching.

For now, investors have become less reluctant to participate, but not yet eager to lead. Funded conviction has moved away from last month’s defensive excess, but the aggregate score still sits in Neutral, the US and DM readings remain negative, and two markets are still bearish. In this configuration, positive surprises should meet less resistance than they did a month ago, but negative surprises still have an audience trained to applaud early. The renewed exchange between Washington and Tehran arrived just in time to test that proposition. Investors have stopped looking for the exit, but they are still standing near it.

Aggregate ROOF Trend: The black line is the aggregate mean of ROOF scores across the ten markets; the shaded grey band shows the range from the most bearish to the most bullish market on each day, indicating the dispersion of sentiment across the universe. Reading it: a rising line indicates increasing risk tolerance; a declining line indicates increasing risk aversion. 

Bottom strip: cross-market dispersion percentile — the cross-sectional standard deviation of ROOF across the ten markets, percentile-ranked against its own full history. Shaded zones mark elevated (>80th percentile) and compressed (<20th) readings. Reading it: a spike into the top shaded zone is a material divergence episode (sentiment moving in different directions across markets), a slide into the bottom shaded zone is a material convergence episode on a common driver (sentiment moving in the same direction across markets).

Regime Distribution: Three horizontal stacked bars show how the ten markets are distributed across the five regimes — today, one week ago, and one month ago. Each bar is colored by regime: red (Bearish), yellow (Negative), grey (Neutral), blue (Positive), green (Bullish). The white vertical marker on each bar shows the aggregate ROOF score for that period. Tick marks below the bars align with the regime thresholds at ±0.20 and ±0.50. Reading it: a leftward shift over time indicates broadening deterioration; a rightward shift indicates broadening improvement. Widening tails signal rising dispersion.

Market Monitor: A table showing, for each market: current ROOF score, current regime, weekly and monthly changes, regime one month ago, and distance to the nearest extreme threshold. Color cues highlight regime deteriorations (red) and improvements (green). Reading it: scan the "1M Ago Regime" column for markets that have crossed regime bands over the past month; check the "Distance" column to find markets close to the ±0.50 extreme thresholds.

Correlation Matrix (Δ1M): A heatmap of correlations between monthly sentiment changes across all market pairs, over a rolling 60-day window. Green cells indicate that investor sentiment in the two markets changed in the same direction; red cells indicate opposite directions. The rightmost column shows each market's average correlation with the rest of the universe. Important: these are correlations of sentiment changes, not market returns or ROOF levels. High correlation means investor mood in the two markets moved in sync over the past 60 days.