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 July, 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

Continued incremental tariff de-escalation, a solid start to the US corporate earnings season and considerable momentum saw risk appetite increase further during July which resulted in major US equities indices achieving new all-time highs.

We remain of the view that investors in risk assets (such as equities) are overlooking a number of serious risks, including:

• elevated US debt levels;
• the unsustainably high budget deficit;
• the likelihood that the One Big Beautiful Bill Act exacerbates these issues (at least in the short term);
• what appears to be the US Federal Reserve losing its independence; and
• uncertainty in relation to the impacts that tariffs will have on the US and global economies (especially on inflation, employment and economic activity).

We believe that these issues create a much higher than normal risk of a serious economic slowdown or period of economic stagflation and this should be motivating equity investors to seek exposure to safe haven sectors, such as utilities and gold.

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.

We have published a separate paper detailing the attractiveness of gold.

Macroeconomic data

Interest rate expectations

The events of the last days of July and the first day of August were a reminder of how quickly and how materially the market’s interest rate expectations can change based on economic data and comments from the US Federal Reserve (‘the Fed’).

A higher-than-expected inflation reading and the Federal Open Market Committee (FOMC)’s decision to keep interest rates on hold accompanied by a comment from the Fed Chair that an interest rate cut in September was no certainty, saw the outlook for cuts dramatically evaporate to only one cut in December (from two cuts only days earlier).

The decision to keep rates on hold was more polarising than usual with open dissent from two Fed Governors for the first time since 1993. There was also renewed pressure from President Trump to cut interest rates and on Fed Chair Jerome Powell to resign. Caping this off, following the meeting a separate Fed Governor announced their resignation from the FOMC.

Only a day later, much weaker than expected employment data combined with huge backwards revisions to the May and June figures resulted in interest expectations whipsawing back to two cuts by the end of the year. As of 1 August, the market was pricing in two interest rate cuts for the remainder of 2025, with the first cut expected in September.

The magnitude of the restatement appears to have been the catalyst for President Trump firing the head of the US Bureau of Labor Statistics, which seems like an extreme reaction. We reflect that it may also indicate that there are elevated risks of statistical error in US economic data (more broadly than just employment data) at the present time given the more unpredictable than normal policy development.

The bigger issue here is what appears to be the Fed losing its independence from government. Further, President Trump firing a bureaucrat for producing undesirable statistics is concerning. While we would expect equity markets to react positively to interest rate cuts (no matter how they happen), the Fed losing its independence must surely bring into question the objectivity of its decision making and increase the risk profile of long-dated US Treasuries and the US dollar.

Inflation data

The Core Personal Consumption expenditures Price Index (Core PCE) increased to 2.8% which was above expectations for 2.7% and the prior month’s 2.8% (revised upwards from 2.7%). The general assumption is that tariffs will be inflationary but that it is still too early to be observing much of an impact. The magnitude to which tariffs increase inflation and therefore interest rates is a critical issue to monitor.

Employment data

The labour market is suddenly showing a concerning level of weakness, adding only 73 thousand jobs during July (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment). Even more concerning were the significant revisions to May and June’s data to 19 thousand and 14 thousand respectively from 144 thousand and 147 thousand originally. Once again, the general assumption is that tariffs will be a headwind to employment in the short term, but that it is still too early to be observing much of an impact. The magnitude to which tariffs increase unemployment and therefore interest rates is a critical issue to monitor.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) came in ahead of expectations in July at 97.2 from 93.0 in June. This level indicates modest weakness 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 short term.

Market impacts

The bond market suffered from the increase in risk appetite (making equities more attractive than bonds) and the contraction in interest rate expectations with the Global Aggregate Bond Index (-1.5%) posting a decline. The yield curve steepened as illustrated by the value of 1-3 year US Treasuries (-0.4%) relative to 7-10 year US Treasuries (-0.9%) and 20+ year US Treasuries (-1.5%). The yield on 10-year US Treasuries ended the month 15 basis points higher at 4.37%.

We are observing more and more attention on the long end of the curve with a view that a yield of 4.9% on 20-year US Treasuries may not be sufficient compensation for the risk of lending to a government with a debt level of 150% of gross domestic product.

The US dollar (US Dollar Index +3.2% to 100) was buoyed by trade deals, a hawkish US Federal Reserve and over-sold technical positioning at the end of June (its worst first half since 1973). Serious questions remain in relation to the US currency’s role as a global safe haven driven by investor concerns about US economic policies such as unpredictable tariffs, budget deficits, and political interference with the US Federal Reserve.

Commodities were mixed with copper (-4.9%) blindsided by President Trump’s announcement of a 50% tariff on semi-finished copper products (such as pipes, tubes, and wiring), while crude oil (+7.3%) rallied on increasing geopolitical tensions between the US and Russia. Gold (-0.4%) continued its sideways consolidation and was outshone by the ‘precious-industrial metals’ such as silver (+1.7%) and palladium (+8.3%).

Incremental tariff de-escalation, a solid start to the US corporate earnings season and considerable momentum propelled equity markets to new heights. Global equities (+1.2%) were once again driven by the US (S&P 500 Index +2.2%). You will recall that US stocks account for over 70% of global equities indices. Within US equities, the strength of technology stocks continued (Nasdaq 100 Index +2.4%), which was driven by the ongoing rally in the ‘Magnificent 7’ mega-cap technology stocks (+5.8%).

Outside of the US, major country indices were universally stronger although Asian indices continued to outperform those in Europe. This was highlighted by the performance of Korea (+5.7%) and mainland China (+3.7%) relative to Germany (+0.7%) and France (+1.4%).

At sector level within the US, unsurprisingly the information technology sector (+5.2%) led the way. The utilities sector (+4.9%) was also a strong performer which was somewhat surprising given the sector’s sensitivity to interest rates (utilities tend to underperform when interest rates increase or when expectations for interest rate cuts moderate). We believe this may have been driven by investors beginning to recognise the strong and strengthening fundamentals of power utilities, driven by electricity demand growing for the first time in a decade.

At factor level, growth stocks (+3.7%) outperformed value stocks (+0.4%), while small caps (+1.7%) more or less kept pace with large caps (S&P 500 Index +2.2%).

Future energy stocks

The Clean Energy Index (+8.2%) rallied across a majority of industry segments to outperform global equities.

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 and the repeal of the Inflation Reduction Act) which has temporarily obscured the impact of this positive catalyst.