AXIOMA ROOF™ SCORE HIGHLIGHTS

The Iran conflict, also known as Two Guys, a Supreme Leader, and an Oil Shock, is now in its seventh month at the top of Wall Street’s box office. What started as an oil story has spread to inflation and, last week, monetary policy, with the Fed raising rates for the first time since 2023. Investors, meanwhile, are jonesing for peace like a kid who’s been made to wait too long for Christmas.

Last week’s FOMC meeting had been preceded by an aggressive sell-off in Treasuries, pushing the 10-year yield above 5%, the highest since 2007. Bond investors were effectively threatening the Central Bank with Fedpocalypse if it failed to raise rates by giving us a preview of what markets might look like if they concluded that the Fed, and Kevin Warsh in particular, was no longer independent. Even a rate hike followed by a dovish Warsh at the press conference, signaling that it was a one-and-done move, could have unleashed it. The Fed instead raised rates in a unanimous vote, and Warsh followed it with a hawkish press conference, thereby avoiding Yieldmageddon. 

Looking ahead, this week will be dominated by an attempt at diplomacy, as world leaders - the term is doing a lot of work here - gather in New York City for the UN General Assembly. Iran is sending a delegation, no doubt hoping to have its claim at war reparations heard. It shouldn’t hold its breath: no shark ever saw a penny in royalties from Jaws.

This will be followed by the all-important third Trump-Xi meeting, the latest sequel in The Global Trade War franchise, potentially the most consequential of them all, but one that arrives with expectations set considerably lower than the stakes would suggest, much like its largely uneventful May instalment in Beijing. Unfortunately, a simple “You look good, have you lost weight?” is not the droids investors are looking for in this particular relationship.

Across the pond, in Germany, the Far Right AfD continues to expand its audience, notching another electoral win on Sunday and almost doubling its previous vote in liberal Berlin, suggesting that what was once an indie movie is getting a considerable wider release. For Friedrich Merz, however, the reviews were less kind. He himself called the results a disaster, and the CDU’s poor showing is likely to intensify the backstage talk about replacing its leading man.

Despite a news cycle that has delivered war, inflation, monetary tightening, stalled tariff negotiations, and European political drama in quantities sufficient to justify several summer blockbusters, sentiment across our investment universe has improved materially. The aggregate ROOF Score has risen from negative territory a month ago to a broadly neutral reading today, while the number of markets where investors remain overtly defensive has fallen from six to two. The audience, it seems, is no longer heading for the exits and while that does not mean investors have suddenly fallen in love with the script, their trading activity suggests they are increasingly prepared to sit through the next instalment.

The most striking feature of the past month has been that pessimism is slipping down the billing faster than optimism is climbing it. APAC ex-Japan investors are now outright bullish and US investors comfortably positive, while investors across most other markets have moved back toward equilibrium. The cast of chronic worriers has become noticeably smaller. Even China, still the most bearish market we track, spent another week improving. Hollywood would call it character development.

At the same time, sentiment has become increasingly synchronized across regions. Cross-market dispersion has fallen from the 66th percentile of its historical range a month ago to just the 23rd percentile today. That convergence is hardly surprising. The Q3 earnings season has ended, reducing the supply of company-specific plot twists just as geopolitics has reclaimed top billing. War, inflation, central banks and trade policy travel more easily across borders than quarterly earnings surprises, pulling investors in different markets toward the same emotional response. Investors are still following different characters, but they increasingly seem to be watching the same film. Every franchise eventually reaches the point where separate plot lines start converging.

Europe remains the outlier. Sentiment among European developed market investors is still negative after a difficult month, although last week's improvement places it on our early-upturn watch list. It is far too soon to declare a redemption arc, but European investors have at least stopped casting themselves exclusively as victims.

The practical significance of all this is straightforward. Neutral sentiment offers less protection than the label implies when it has been achieved through fading pessimism rather than rising conviction. Investors have become more willing to participate, but they have not yet become enthusiastic believers. They are willing to buy tickets for the next sequel, but they are still waiting for evidence that the franchise has found its way back to the original script that compelled them to become a fan in the first place.

Some stories end because the audience gets what it wants. Others end because the audience gets tired of waiting. This week will help them decide which kind this is.

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.