We share our latest observations on global asset markets

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

Key points

• The Iran conflict saw equities, bonds, industrial metals, gold, and currencies other than the US dollar sold indiscriminately as liquidity was rapidly withdrawn from asset markets.
• This situation should be motivating equity investors to seek exposure to geographies, sectors and themes which have attractive valuations and lower risk profiles. We favour defensive sectors such as electric utilities to which T8 Energy Vision has significant exposure.
• T8 Energy Vision declined for the month. The largest detractor was the mark-to-market on FX hedging positions, excluding these, T8 Energy Vision outperformed global equities. Please refer to the monthly report for detail specific to the performance of the fund.
• T8 Energy Vision has generated a positive return year-to-date and year-over-year, outperforming major indices with comparable realised volatility (a common measure of risk). We attribute the strong performance to the growing realisation that energy is the key obstacle to the growth of artificial intelligence. We maintain our very positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging.
• We believe that investors will not be able to get sufficient exposure to this thematic via major indices and therefore a deliberate allocation to a strategy such as T8 Energy Vision should be contemplated.

Market update

Summary

March was a month in which diversification failed almost completely. The closure of the Strait of Hormuz transformed the Iran conflict from a geopolitical event into a global energy supply shock, inflation shock and spike in interest rate uncertainty.

Investors did not rotate, they liquidated. Equities, bonds, industrial metals, gold, and currencies other than the US dollar were sold indiscriminately as liquidity was rapidly withdrawn from asset markets.

In general, the only assets that offered refuge were those with a direct link to the shock itself: conventional energy (as crude oil futures surged over 60%). The flight to safety in US dollar cash saw the US Dollar Index strengthen 2.4%.

The conflict overshadowed absolutely everything else, including developments in artificial intelligence (AI) which we believe begin to justify the unprecedented investment.

We believe that the present market environment should be motivating equity investors to seek exposure to geographies, sectors and themes which have attractive valuations and lower risk profiles. We favour electricity generation and its supply chains which is the key focus of T8 Energy Vision. While electricity generation has traditionally been considered a defensive sector, it has recently started to benefit from rapidly growing electricity demand in developed markets (driven by the data centre boom), following approximately two decades of stagnation. Rapid demand growth is a genuinely attractive attribute in addition to its well-known defensive characteristics which is yet to be fully appreciated by markets.

Macroeconomic data

Employment data

We believe the recent government shutdown, the circumstances leading to the replacement of the Bureau of Labor Statistics Commissioner and dramatic decline in US immigration will make US labour market data more unpredictable. This was true of the non-farm payrolls report for February. It indicated that the US economy lost 92,000 jobs against consensus expectations for a gain of 55,000 (a swing of nearly 150,000) which saw the unemployment rate rise 10 basis points to 4.4%.

While the swing was dramatic, the overall level of unemployment remains at a level which is unlikely to worry the Federal Open Market Committee (FOMC). Unless we see a significant and sustained deterioration in the labour market (a significantly higher unemployment rate), we believe the inflationary impulse from the energy shock almost certainly dominates the FOMC’s thinking on interest rate decisions.

Inflation data

The FOMC’s preferred measure of inflation, the Core Personal Consumption Expenditures Price Index (Core PCE) for February came in at 3.0% year-over-year which was in line with market expectations and flat on the prior reading.

While this data pre-dates the Iran conflict and energy shock, it is still relevant because it indicates that inflation was more elevated than desirable before the energy shock has started flowing through fuel prices, freight costs, and food prices into inflation readings.

Consumer confidence

Consumer confidence continues to oscillate in weak territory with a level of 91.8 in March, little changed from 91.2 the prior month (you will recall that consumer spending accounts for nearly 70% of US economic activity and that readings of less than 100 indicate a more pessimistic than normal outlook). With energy costs rising sharply across the consumer basket, we would expect these readings to deteriorate further in the near term.

GDP data

GDP for the fourth quarter of 2025 was revised sharply lower (to just +0.7% annualised from a prior estimate of +1.7%) which indicates the US economy is slowing down and that the US economy may have entered the conflict with Iran in a more fragile state than markets have so far appreciated.

Interest rate expectations

The implications for monetary policy from the Iran conflict are significant. While at the beginning of March, markets were pricing approximately two rate cuts for the remainder of 2026, at one point during the month, markets were beginning to price in the possibility of an interest rate hike.

March’s FOMC meeting saw the committee keep interest rates on hold (target rate at 3.5%-3.75%) and the dot plot shifted hawkishly toward just one more cut in 2026. The statement reiterated that inflation was still above the 2% target, but it also affirmed that the “appropriate path” of policy still included at least one rate cut in 2026, with the median FOMC “dot plot” showing one cut this year and another in 2027 (more participants were clustered around either no cuts or just one cut, and fewer dots implying multiple cuts than the prior release).

The statement added language about the uncertain implications of the Middle‑East conflict and the impact of higher oil prices on inflation, yet it did not upgrade the language on the risk of inflation or explicitly signal a hawkish shift toward hikes, which markets interpreted as a de‑emphasis on further tightening.

By month-end, markets were pricing in a small chance of a cut at the December meeting.

It is notable that Australia’s central bank increased interest rates a second time during March in response to above-target inflation and following what had been the first interest rate hike since the 2024-2025 easing cycle from a major, developed-economy central bank.

Our base case is that interest rate uncertainty will remain elevated in this environment. You will recall that elevated inflation, rising unemployment and slowing economic activity is by definition stagflation (a most undesirable and uncommon economic condition) and we reflect that central banks find themselves in a similar position to the 1970s where an oil shock runs the risk of simultaneously weakening economic growth and raising inflation, making policy more difficult than usual for markets to predict.

Market impacts

The Iran conflict saw equities, bonds, industrial metals, gold, and currencies other than the US dollar sold indiscriminately as liquidity was rapidly withdrawn from asset markets.

Bonds

Global bond benchmarks (Global Aggregate Bond Index -3.1%) were sold heavily as the inflationary implications of the energy shock outweighed the flight-to-safety impulse that might otherwise have driven yields lower.

The 10-year US Treasury yield rose 38 basis points to 4.32% as the whole curve shifted upwards leaving the shape of the curve little changed (with a 10-year/2-year spread of 52 basis points, which is slightly below normal and typically indicates policy uncertainty).

We retain our concern about the long end of the curve that a yield of less than 5% on 20-year US Treasuries may not be sufficient compensation for lending to a government with debt at 125% of GDP, structural deficits, compounding interest costs and reduced foreign demand for US assets (amid ongoing questions about the dollar’s role as the global reserve currency). The Iran conflict, by widening deficits and reducing the attractiveness of US assets to certain sovereign holders, does not improve this picture.

Currencies

The US dollar moved sharply higher (US Dollar Index +2.4% to 100) as investors sought US dollar cash as one of the few safe havens. This moved the dollar to the top of the trading range observed since mid-2025 (US Dollar Index 97-100) and this remains an important issue to monitor on the basis that a breakout from here could be the catalyst for a more significant move which would have implications for other asset markets.

The Euro fell 2.2%, the Japanese Yen fell 1.7% and EM currencies (MSCI EM Currency Index -2.8%) weakened against the dollar. The Australian dollar declined 3.1% notwithstanding an interest rate hike during the month and the expectation for more to come.

Commodities

The commodity complex produced sharply divergent outcomes in March.

Energy

As everyone has become aware, approximately 20% of global crude oil, 30% of global LNG, and significant volumes of refined products pass through the Strait of Hormuz. The effective closure of the strait was described by the IEA as the largest supply disruption in the history of the global oil market and saw crude oil prices spike accordingly (Dated Brent +79.3% to $127 per barrel and June Brent futures +63.3% to $118 per barrel).

Precious metals

In contrast, precious and most industrial metals fell sharply. Gold declined 11.6% (ending the month at $4,668 per ounce), silver fell 19.9% (to $75 per ounce) and platinum and palladium fell approximately 17% each.

We have provided more detailed observations in relation to gold in a separate report.

Industrial metals

While copper declined 7.8%, aluminium (+12.6%, $3,521/tonne) was a notable beneficiary, reflecting supply disruptions related to the conflict and anticipating the impact that higher energy costs will have on the aluminium smelting cost curve.

Equities

March saw the reversal of a two-month trend of non-US outperformance. Europe and Asia (which had attracted record inflows in February as investors rotated away from expensive US equities) proved more vulnerable to the energy shock than the US, given their structural dependence on imported energy.

The MSCI World Index fell 6.6% for the month, erasing its year-to-date gains. Asia was hardest hit, especially imported energy-dependent South Korea (KOSPI Index -19.1%) and Japan (Nikkei 225 Index -13.2%). European indices fared only marginally better (FTSE 100 Index -6.7%, DAX Index -10.3%, and CAC 40 Index -8.9%). The near doubling of European natural gas prices, against the backdrop of low post-winter storage levels again exposed the fragility of the region’s energy position.

Within the US, the conventional energy (oil and gas) sector was the only bright spot (S&P 500 Energy Index +10.3%) and every other sector declined. Industrials (S&P 500 Industrials Index -8.5%) and health care (S&P 500 Health Care Index -8.3%) were the worst performers. In a reversal of the year-to-date trend, technology stocks (S&P 500 Information Technology Index -3.9%) fared relatively better.

Notably, even utilities declined (S&P 500 Utilities Index 3.4%), reflecting the market’s initial concern that the energy shock would be inflationary (and therefore result in higher interest rates) negating what would typically have been a benefit from a flight to safety.

The performance of all major style factors converged. Value stocks (Russell 1000 Value Index -5.0%) and growth stocks (Russell 1000 Growth Index -5.3%) delivered correlated performance, and so too large caps (Russell 1000 -5.1%) which declined alongside small caps (Russell 2000 -5.2%). Equal-weighted indices, which had outperformed in the prior two months as breadth expanded, fell in line with market-cap-weighted indices, another sign that the March decline was completely indiscriminate.

Future energy stocks

While the Clean Energy Index declined 1.9%, beneath the surface the universe of future energy stocks showed significant internal dispersion with renewable energy sectors, solar (MAC Global Solar Energy Index +1.3%) and wind (ISE Global Wind Energy Index +1.1%) appreciating modestly, while electric vehicles (Bloomberg Electric Vehicles Index -5.5%) and lithium batteries (Solactive Global Lithium Index -1.4%) declined.

It was notable that indices of stocks with high short interest performed quite well amid the market turmoil (Goldman Sachs ‘highest short interest basket’ +0.1%) which we believe is indicative of hedge fund de-grossing (as funds reduced overall exposure, covering short positions and providing a technical bid for heavily-shorted stocks, partially offsetting selling pressure) which may have artificially supported some of the lower quality constituents of this index, masking what would otherwise have been more severe index-level declines.

As noted in prior months, T8 Energy Vision holds only eight positions (approximately 12% of net asset value) that overlap with the Clean Energy Index’s 149 holdings. T8’s exposure is concentrated in a diverse range of high-quality electric utilities and their supply chains which are typically mid-cap, profitable and cash-generative companies, therefore a very different risk profile to the small, loss-making energy technology companies that dominate Clean Energy Index.

We note the observation made by multiple commentators that the Iran conflict has materially strengthened the long-run case for renewable energy. As unpopular as solar and wind power have become in some parts of society and the market, and while intermittent renewables are not a complete solution by themselves, they undoubtedly reduce vulnerability to external supply disruptions and contribute to energy resilience (the conflict has made this an even more urgent geopolitical priority). In addition, renewable energy and electric vehicles have become significantly more cost competitive as conventional energy costs have surged. Further to this, technologies such as solar, batteries and electric vehicles will continue to benefit from improving technology and increasing manufacturing scale. We regard this as a structural positive factor that markets are only beginning to consider.

Outlook

The outlook for markets in the short-medium term is clearly subject to the duration and intensity of the Iran conflict. We see an extraordinarily wide range of plausible scenarios between a ‘best-case’ (conflict de-escalation; oil supply recovers; inflation spike considered transitory; interest rate cuts to support the economy; risk-on) and a ‘worst-case’ (conflict escalates; prolonged oil shock; large inflation shock; economic recession; stagflation; interest rate hikes; risk-off).

Like everyone we will continue watching every development closely but remain confident in our portfolio’s ability to weather periods of uncertainty on the basis of its composition of high-quality electric utilities (including transmission and distribution infrastructure) and their supply chains; industrial metals; renewable energy, energy storage and electric vehicles.

Meanwhile, the Iran conflict is overshadowing absolutely everything else, especially recent developments in artificial intelligence (AI), where expectations and capital commitments have increased materially over the last six months (consensus aggregate hyperscaler CAPEX for 2026 has increased 40-50% to US$650–700 billion in the last six months, which is on track to be nearly double the amount spent in 2025).

Also significantly, the narrative has shifted from building infrastructure for the probability that business models based on AI would emerge (markets were never quite convinced that ChatGPT-style chatbots could generate returns at the scale required) to building it to service rapidly growing demand for compute capacity from agentic AI. Agentic AI (systems that can plan and act autonomously) appears to be emerging as a credible application which begins to justify the unprecedented investment.

We observe that power grid access has now overtaken chip supply as the primary factor perceived to be constraining the growth of AI. Global energy demand growth is accelerating – especially in advanced economies. In 2025, US electricity demand grew at nearly five-times the 10-year average. Electricity is booming, and the world (and especially developed markets) needs more electricity generation, rapidly.

Our expectation is that this 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.