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 August, outperforming global equities. Please refer to the monthly report for detail specific to the performance of the fund.
• We maintain our positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging.
• 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

Momentum and a solid US corporate earnings season saw risk appetite remain elevated in August, resulting 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 US budget deficit;
• the likelihood that the One Big Beautiful Bill Act exacerbates these issues (at least in the short term);
• 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

Weaker than expected employment data combined with significant backwards revisions to earlier months saw interest expectations firm around two cuts for the remainder of the year, with the first cut priced-in for October. We note that expectations have been oscillating from month-to-month and we would definitely not rule out a cut at September’s Federal Open Market Committee (FOMC) meeting.

Inflation data

The Core Personal Consumption expenditures Price Index (Core PCE) increased to 2.9%. While this was in line with market expectations, it was a small increase on the prior month’s 2.8%, indicating inflation is increasing. 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 over the next 6-12 months – we see the potential for the impact to be material.

Employment data

You will recall we mentioned in last month’s commentary that 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). More concerning has been the material downward revisions to May and June’s data (to 19 thousand and 14 thousand respectively from 144 thousand and 147 thousand originally), indicating the labour market has been much weaker than the data had initially indicated. 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 slightly better than expectations in August at 97.4 and more or less in line with the prior reading of 97.2 in July. 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 – while interest rate cuts may provide some relief, the other factors do not appear to be headed in the right direction in the short term.

Market impacts

Bonds

The bond market rebounded driven by firming expectations for interest rate cuts with the Global Aggregate Bond Index (+1.5%) rebounding from July’s decline.

The yield curve continued to steepen as illustrated by the value of 1-3 year US Treasuries (+0.6%) relative to 7-10 year US Treasuries (+1.3%) and 20+ year US Treasuries (-0.4%). The yield on 10-year US Treasuries ended the month 15 basis points lower at 4.23%.

We are observing more and more concern in relation to 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 and an outlook for material budget deficits for the foreseeable future.

Currencies

The US dollar (US Dollar Index -2.2% to 98) drifted lower on the firming expectations for interest rate cuts. 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

Hard commodities were universally strong with the exception of crude oil (-6.1%) following OPEC production increases. Precious metals led the charge, although gold (+4.8%) was once again outperformed by the ‘precious-industrial metals’ such as silver (+8.2%) and platinum (+6.1%).

Equities

Momentum propelled equity markets to new heights. Global equities (+2.5%) outperformed the US (S&P 500 Index +1.9%), led by China (+8.0%) and Japan (+4.0%).

At sector level within the US, the materials sector (+5.6%) was the leading performer driven by commodity prices, while utilities (-2.0%) lagged notwithstanding the firming expectations for interest rate cuts. We speculate that this may have been the result of profit taking following their strong start to the year (the utilities sector +10.7% to 31 July, outperforming the S&P 500 +9.8%).

Value stocks (+3.0%) outperformed growth stocks (+1.1%), while small caps (+7.0%) materially outperformed large caps (S&P 500 Index +1.9%), which was most likely as a result of firming expectations for interest rate cuts.

Future energy stocks

The Clean Energy Index (+8.8%) 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 and open hostility towards renewables). 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.