We share our latest observations on global asset markets in relation to T8 Energy Vision

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• T8 Energy Vision generated a positive return during June, outperforming global equities. Please refer to the monthly report for detail specific to the performance of the fund.
• Looking beyond the short-term noise around tariffs and trade wars, we have not changed our positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging. We believe this will allow the electricity sector to prosper, even if the economy experiences a slowdown.
• Rising electricity demand represents a compelling opportunity for investors. Being led by the boom in data centres (a secular electricity demand growth trend) and the electrification of road transport (a structural electricity demand shift), the winners will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).

Market update

While markets experienced an extraordinary array of surprises in June (some of which were genuinely left field, such as the US strike on Iran’s nuclear facilities – there were so many, we have elaborated on these in a separate paper), markets didn’t miss a beat, continuing the V-shaped recovery from April’s Liberation Day shock and resulting in the S&P 500 Index ending the month at a new all-time high.

Investor risk appetite is high and appears to be increasing as equity markets continue to rally. We reflect that investors in equities appear to be ignoring a variety of material risks, including elevated US debt levels; the unsustainably high budget deficit; the impacts following the One Big Beautiful Bill Act being signed in to law (which may exacerbate these issues, at least in the short term); uncertainty in relation to the impacts of tariffs (especially on inflation); and the trajectory of the economy.

We believe these uncertainties are unlikely to be resolved in the short term and should be motivating equity investors to seek safe haven sectors, such as utilities. We observe that the utilities sector is benefitting from growing electricity demand in developed markets for the first time in a decade (driven by the data centre boom). This is a genuinely attractive attribute beyond its well-known defensive characteristics.

Macroeconomic data

Economic data (especially inflation, unemployment and indicators of economic activity) remain among the key catalysts for asset markets over the next 2-3 months (in the absence of left field shocks which seem more likely than usual under President Trump).

The outlook for fewer interest rate cuts this year reflects higher than expected inflation and lower than expected unemployment

The market is pricing in two interest rate cuts for the remainder of 2025, with the first cut expected in September. This reflects the presently elevated inflation and low unemployment data. We reflect that these factors can change rapidly and therefore so too can interest rate expectations. In addition, we observe mounting pressure from the Trump Administration on the US Federal Reserve to cut interest rates, including explicit pressure on Fed Chair Jerome Powell to resign. In the event Powell is replaced by a more dovish Chair, this would increase the likelihood of interest rate cuts happening even in the presence of elevated inflation.

The Core Personal Consumption expenditures Price Index (Core PCE) increased to 2.7% which was above expectations for 2.6% and 2.5% in the prior month. The assumption is that tariffs will be inflationary. The magnitude to which tariffs increase inflation and therefore influence thinking on interest rate cuts is a critical issue to monitor.

The labour market remains solid with the economy adding 139 thousand jobs during May, slightly more than the 126 thousand expected (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment). This is an indication that the US economy remains strong and tariffs have not had an immediately identifiable impact on unemployment (although arguably it may be too soon). The unemployment rate was steady at 4.2%. Once again, the impact tariffs will have on the labour market is a critical issue to monitor.

The key question is how tariffs will impact the US economy

Consumer confidence slipped again in June to 93.0 from 98.0 in May (you will recall that consumer spending accounts for nearly 70% of US economic activity and month over month changes of more than 5 points are considered significant). This level is weak in absolute terms with the context that readings of less than 100 indicate a more pessimistic than normal outlook.

The response of US consumers to the tariff shocks will be a key determining factor for the trajectory of the US economy. In the short term we are cautious on the basis that consumer confidence is believed to be driven by a combination of job security, wages, inflation and interest rates – none of which appear to be headed in the right direction in the immediate short term.

Market impacts

The bond market has calmed down relative to recent months and the whole yield curve shifted downwards during June (the yield on 10-year US Treasuries ended the month 17 basis points lower at 4.23%). The long end of the curve benefitted most with 20+ year US Treasuries (+2.3%) outperforming 7-10 year US Treasuries (+1.3%) and the Global Aggregate Bond Index (+1.9%).

The US dollar remained under pressure (US Dollar Index -2.5% to 97), suffering its worst first half since 1973 and signalling a major loss of confidence in the US currency’s role as a global safe haven. It also reflects investor concerns about US economic policies, including unpredictable tariffs, budget deficits, and maybe even the risk of political interference with the US Federal Reserve. Continued dollar weakness would make it harder for the US to finance its deficits, raise its borrowing costs, and may even start to undermine its capacity for global economic leadership.

Commodities were almost universally stronger with gold (+0.4%), crude oil (+5.8%), copper (+5.3%) and silver (+9.5%) the most notable, benefitting from the weak US Dollar and demand from investors for hard assets.

Tariff de-escalation and little concern for global geopolitical events was the backdrop for the continued rally in equities as volatility continued normalised. Global equities (+4.2%) were once again propelled by US equities (S&P 500 Index +5.0%). While technology stocks led the charge (Nasdaq 100 Index +6.3%), small caps also participated (Russell 2000 Index +5.3%).

The ‘Magnificent 7’ mega-cap technology stocks (+6.1%) continued to rally. Notwithstanding this continued strong performance, we believe the seeds of doubt in relation to US exceptionalism (that US stocks will be perpetually dominant) have been sown within markets. This, combined with the lopsided nature of major global indices (e.g. MSCI World Index) within which US stocks account for over 70% should be motivating investors to diversify out of mega-cap technology and the US.

At country level, European indices were weaker while those in Asia strengthened. This was highlighted by the performance of Germany (-0.4%), France (-1.1%) and the UK (-0.1%), relative to the performances from Korea (+13.9%), Japan (+6.6%), Hong Kong (+3.4%) and mainland China (+2.9%).

At sector level within the US, the performance of the technology-heavy sectors such as information technology (+9.7%) and communication services (+7.2%) eclipsed the performance of other sectors.

At factor level, growth stocks (+6.3%) outperformed value stocks (+3.2%), while small caps (+5.3%) managed to keep pace with large caps (S&P 500 Index +5.0%).

Future energy stocks

The Clean Energy Index (+7.9%) rallied across a majority of industry segments to outperformed global equities. Only the wind and biofuel segments detracted from the otherwise very strong performance of the index.

Outlook

Structural, secular and cyclical tailwinds are converging for energy stocks. Global energy demand growth is accelerating – especially in advanced economies. In 2024, electricity demand grew at roughly double the 10-year average. Electricity is booming, driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift). The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).

The world (and especially developed markets) needs more electricity generation. Our expectation is that this need will be met by a variety of different generation types, namely nuclear, gas and large-scale renewables. The lead time and cost of new nuclear and even gas-fired electricity generation creates a fertile environment for large-scale renewables, notwithstanding the prevailing perception to the contrary (especially Donald Trump’s ‘drill, baby, drill’ comments). We refer you to a short summary of our expectations for the future energy mix in the US. Falling US interest rates (100 basis points of cuts so far in this cycle) is a cyclical tailwind which is yet to have a material impact on these industries (which have historically displayed very high sensitivity to interest rates). We believe the lag is explained by recent policy uncertainty (especially following the US election) which has temporarily obscured the impact of this positive catalyst.