AXIOMA ROOF™ SCORE HIGHLIGHTS

For the past few weeks, the global sovereign bond market has been repeating the same message to governments and equity investors, each of whom had found separate but equally expensive reasons to ignore it. To governments, the message is that fiscal indulgence now carries a higher term premium. To equity investors, the message is that subjective AI valuations now carry a higher risk premium. Trust and faith remain available, but neither is offered at last year’s price.

Investor sentiment moved away from the bearish concentration of a month ago without moving into anything that looks like broad conviction. Five of the ten markets we track were bearish a month ago; only China remains there now, as investors in that market appear unconvinced that additional stimulus is imminent. Positive readings have doubled from two to four markets, while bearish and negative readings have fallen by four markets combined, a material migration away from risk-off positioning. Yet the aggregate score is still effectively neutral ahead of fresh US inflation data and the Fed and ECB interest-rate decisions. A sign that the message from the bond market was strong enough to teach, but not enough to frighten.

The correlations make the split clearer. Sentiment changes outside the US are still moving around a broad common component: APAC ex-Japan and developed markets ex-US moved closely in sync over the past month, with a correlation of +0.92, and APAC ex-Japan also moved strongly with emerging markets at +0.88. US sentiment followed a different script. Its monthly changes moved against Europe and China, with correlations of -0.62 and -0.60 respectively, while Australia remained largely independent of both developed markets and APAC ex-Japan. That leaves dispersion around the 67th percentile of its history, little changed from last week’s 63rd, but the average hides the more useful point: investors outside the US are increasingly reading from the same page, while US investors have begun annotating a different book.

AI, meanwhile, is beginning to encounter its own resistance. There are two types of people questioning our full-speed-ahead, no-holds-barred approach to AI: those who do not understand it, and those who understand it best. Investors should not confuse the two objections. The first asks a philosophical tree-in-the-forest question about what AI actually is, and what it might become. The second is rather more materialistic, and considerably more uncomfortable: having already made so much return from the AI theme since 2023, should we really be expecting to make even more before revenues come in?

The philosophical question may never be settled. Humans have always excelled at the ancient sport of projecting a mind onto anything that looks capable of hosting one, and AI is the most convincing surface we have ever built for that projection. As the technology edges closer to AGI, the question becomes: when AI is alone in a room, is there anyone there? And, if there is, should we be afraid? For the AI faithful, there is no question. For the AI doubtful, there is no answer.

The equity market, meanwhile, continues to behave as if AI were an enormous, frosted cupcake in the middle of a room filled with starving investors, all insisting that one more slice is still a disciplined allocation decision. Increasingly that single theme feeds most of their return, and the danger lies less in AI's claim to market leadership than in how much of everyone's portfolio now depends on that claim being honored on schedule. Drawdowns are a reminder that valuations are instruments, not ornaments. The valuation question investors should be asking is: when AI is placed alone in a valuation model today, is there any additional return there? When modeling that question, remember that markets don't have a ‘Declaration of Independence’, they have a ‘Declaration of Interdependence’.

That is why the coming week matters less as a calendar of releases than as a test of participation quality. The past month’s recovery in sentiment gives risk assets more support than they had in early August, but the weekly pause says investors have not converted relief into conviction. Positive readings in EM, APAC ex-Japan, DM ex-US, and the UK show that risk appetite has returned where the reward looks identifiable. China’s bearish reading and Europe’s renewed weakness show that it has not returned everywhere. A rally can live with skepticism. It has a harder time when skepticism is the marginal buyer.

The economic agenda for the week ahead looks like a confirmation-bias buffet. US CPI and PPI will be interpreted as instructions to the Fed, even by investors who insist they are merely inputs. Michigan sentiment will be treated as a window into the consumer, Germany's industrial production as a progress report on the old economy, UK GDP as a monthly verdict with quarterly pretensions, and China and Taiwan’s trade data as a way to decide whether tariffs and AI demand are sharing the same sentence or merely the same calendar. Investors will receive plenty of information with which to justify the view they brought from the previous week, but the better question is whether any of it changes the balance between risk tolerance and risk aversion enough to disturb the one-month recovery in sentiment. Blessed are the data-dependent, for they shall inherit the revisions.

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.