We share our latest observations on global asset markets

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

Key points

• T8 Energy Vision generated a positive return in line with equity markets. Please refer to the monthly report for detail specific to the performance of the fund.
• Excitement for artificial intelligence (AI) continues to accelerate and a clear beneficiary of this has been microchip stocks which are experiencing a record-breaking boom (Philadelphia Semiconductor Index +169.6% year-over-year), driven by demand from data centres.
• We consider this an excellent leading indicator for electricity demand growth on the basis that microchips in data centres require a significant amount of electricity to operate. The electricity industry is booming but so far this is yet to translate into any real excitement in electric utility stocks (S&P Global 1200 Utilities Index +17.0% year-over-year). We maintain our structurally bullish outlook for the electricity sector.
• Over the last 12-months, T8 Energy Vision (+47.6% year-over-year) has outperformed major indices while realising a comparable level of annualised volatility (a common measure of risk). We attribute this strong performance to the improving fundamentals of energy and its supply chains. Past performance is not an indication of future returns.
• We maintain our structurally bullish outlook for the electricity sector.
• Investors will not be able to get tangible exposure to the electricity demand growth thematic via major indices (we estimate electric utilities and their supply chains account for only 3-4% of global equities indices). For investors seeking exposure to this thematic, a specialised strategy such as T8 Energy Vision should be contemplated.

Market update

Summary

The blistering equity market rally continued (characterised by extraordinary momentum in semiconductor stocks), driven by the perceived de-escalation of the Iran conflict and notwithstanding the Straits of Hormuz has remained effectively closed (creating significant uncertainty for energy markets, as well as many commodities and major downstream industries).

Macroeconomic data

Inflation data

The Core Personal Consumption Expenditures Price Index (Core PCE) for April increased, coming in at 3.3% year-over-year, an increase of 10 basis points on the prior reading, which was in line with the market’s expectations.

Inflation (and whether or not it will moderate without higher interest rates) appears likely to remain the key variable in relation to interest rate policy.

Employment data

The recent unpredictability of US unemployment data continued (you will recall we have been writing about this for a number of months) with the non-farm payrolls report for April indicating the creation of 115,000 new jobs, which was considerably above expectations for 65,000. Together with a small upward revision to the prior month’s estimate of 178,000 to 185,000 indicates a robust US labour market.

The unemployment rate was steady at 4.3% and unless we see a trend reversal and a significant deterioration (i.e. an unemployment rate approaching 5%), inflation will remain the most important variable in relation to interest rate expectations.

Consumer confidence

Consumer confidence remains subdued with a level of 93.1in May, little changed from 92.8 (upwardly revised to 93.8) 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).

GDP data

The second estimate of US GDP for the first quarter of 2026 came in at +1.6% quarter-over-quarter annualised (slightly below the first reading and expectations for 2.0%).

Interest rate expectations

The April FOMC meeting minutes released on 20 May showed a clear hawkish shift with a majority indicating if inflation stayed persistently above 2%, that “some policy firming would likely become appropriate”.

While Kevin Warsh was sworn in as Fed Chair during May, he is yet to make any decisive comments in relation to interest rate policy.

While at the beginning of May, futures markets were pricing-in a 10% chance of an interest rate cut by the end of 2026, by the end of the month this had flipped to a 60% chance of a hike. If this perception is sustained (or increases), we would expect a degree of equity market rotation away from long-duration growth stocks toward more defensive, value, and cash-flow-resilient sectors as bond yields rise, discount rates increase and liquidity expectations tighten.

Market impacts

While the Straits of Hormuz has remained effectively closed (creating significant uncertainty for energy markets, as well as many commodities and major downstream industries), markets remain singularly focused on the Trump Administration’s de-escalation signals which saw risk appetite increase.

Bonds

There was little movement in bond markets with major benchmarks (Global Aggregate Bond Index +0.3%) little changed on the prior month.

The biggest movement was at the front of the curve reflecting expectations for higher interest rates with the 2-year US Treasury yield rising 14 basis points to 4.0%. The 10-year US Treasury yield rose 6 basis points to 4.44% and the yield curve flattened modestly (the 10-year/2-year spread of 43 basis points is slightly below normal and typically indicates policy uncertainty).

Currencies

The US dollar rose modestly (US Dollar Index +0.9% to 99) which was most likely the result of the hawkish pivot in interest rate expectations. The Euro (-0.6%) and the Japanese Yen (-1.7%) fell while EM currencies (MSCI EM Currency Index +0.5%) rose modestly against the dollar.

Commodities

While the perception that the Iran conflict and Straits of Hormuz crisis was continuing to de-escalate was more or less reflected in commodity prices with the price of crude oil weakening and industrial metals strengthening, we see significant potential for adverse impacts still to come given the Straits of Hormuz has remained effectively closed and the magnitude of which will only get worse the longer it remains closed or constrained.

You will recall our previous summary of the magnitude of the disruption to various commodity markets and these should remain front of mind, in particular the fact that approximately 20% of global oil (in the form of both crude oil and refined products) and 20% of global LNG, pass through the Straits is significant. The Middle East is also a major source of gas-derived industrial commodities. Industries from fertilisers (therefore potentially impacting crop yields and food production) to a diverse range of industrial processes and products (including microchips) stand to be impacted by the disruption to this choke point.

In terms of fertiliser inputs, roughly 15% of global urea consumption, nearly 10% of ammonia and phosphate and as much as 25% of sulphur pass through the Straits of Hormuz.

Global food production is highly sensitive to fertiliser. In the event of a shortage, Brazil, India and parts of emerging Asia and Africa face the greatest risks, where agriculture is both fertiliser-intensive and heavily reliant on imports. While the US and China are more self-sufficient, they will also be impacted by fertiliser prices on the basis that global pricing is more-or-less set by the marginal cost.

Further to their use in fertiliser, ammonia is a key input in explosives (critical to the mining industry). Sulphur is also a vital input in sulphuric acid which is critical in the production processes of copper, nickel, uranium and rare earths, as well as having a wide range of industrial applications.

Industrial commodities such as helium (used wide range of industries, especially Magnetic Resonance Imaging machines and in microchip manufacturing) and methanol (which has a very diverse range of applications from plastics and petrochemicals to solvents and adhesives) are also materially impacted with the Straits being the choke point for up to 20% and 15% of global consumption respectively. It is impossible to know how much of the present strength in microchip markets is related to fear of a helium-related shortage of microchips versus expectations for demand from AI.

Energy

While you will recall the closure of the Strait was described by the IEA as “creating the largest supply disruption in the history of the global oil market”¹ and the Straits have remained effectively closed, the price of crude oil actually eased further (Brent futures -19.3% to $92 per barrel).

While the combination of perceived conflict de-escalation, some demand destruction and some supply being diverted around the choke point (e.g. Saudi Arabia’s East-West pipeline to the Red Sea as well as a variety of other overland routes) no doubt contributed, the oil price indicating a crisis of only ‘medium severity’ was the result of the unprecedented release of 400 million barrels of strategic oil inventories (more than 2 times larger than the largest ever strategic inventory release in 2022 and far larger than the 1991, 2005 and 2011 releases).

While 400 million barrels is unprecedented in size, against the ongoing supply disruption of 10-15 million barrels per day, this only plugs the gap for 30-40 days. While the US is more or less self-sufficient and China has abundant stockpiles of its own, with only 1,400 million barrels estimated to be remaining in IEA inventories, the balance of the world is in a precarious position. Even if the conflict is decisively resolved, the world will be vulnerable to shocks until these inventories are replenished. Further, we estimate the act of refilling them will create elevated demand for oil and a tailwind to the oil price for up to six to 12 months following the resolution of the conflict.

Precious metals

Counterintuitively in the context of the geopolitical risk backdrop, gold declined 1.7% (ending the month at $4,540 per ounce). We have provided more detailed observations in relation to gold in a separate report.

The precious industrial metals were more mixed with silver rising 2.1% (to $75 per ounce), while platinum and palladium slipped 3.4% and 11.2% respectively.

Industrial metals

Copper (+5.3%) continued to strengthen, supported by a variety of factors from China’s sulphuric export ban (which we have commented on above) to speculation in relation to US tariffs (which reopened the US import-arbitrage trade and increased the scarcity premium in global copper prices). While there is no evidence of any tangible impact at this stage, it is possible that the Ebola outbreak in the Democratic Republic of Congo (nearly 15% of global mined copper supply) has added to copper’s risk premium.

Aluminium (+6.7%) continued to strengthen driven by supply disruptions related to the conflict and the impact that higher energy costs are expected to have on the aluminium smelting cost curve.

Equities

The rally in global equities continued and remained very narrow, led by the mega-cap US technology stocks and semiconductors. The narrowness was illustrated by contrast between the MSCI World Index which rallied 4.4% while its equally-weighted counterpart rallied only 2.9% for the month.

The extraordinary performance of South Korean equities continued (KOSPI Index +28.4%), driven by some of the world’s leading semiconductor stocks (e.g. Samsung Electronics +43.1% and SK Hynix +81.6%). The momentum in Japanese equities (Nikkei 225 Index +11.9%) also continued, driven by Japan’s semiconductor supply chain. European equity indices were relatively anaemic in comparison (FTSE 100 Index +0.3%, CAC 40 Index +0.8% and DAX Index +3.3%).

Within the US, Eight out of 11 S&P 500 sectors finished lower for the month, emphasising the rally’s absence of breadth. The S&P 500 Index’s +5.1% for the month was largely a product of the Information Technology sector (S&P 500 Information Technology Index +15.9%) which was the outsized standout given its exposure to semiconductor stocks (Philadelphia Semiconductor Index +22.1%).

In terms of major style factors, growth stocks (Russell 1000 Growth Index +7.1%) outperformed value stocks (Russell 1000 Value Index +2.8%) which was understandable given their exposure to semiconductors. Large caps (Russell 1000 +5.0%) outperformed small caps (Russell 2000 +4.3%).

Future energy stocks

The Clean Energy Index rallied 16.2% and it is notable once again that indices of stocks with high short interest experienced the best performance (Goldman Sachs ‘highest short interest basket’ +14.7%), which we believe is indicative of aggressive short covering by hedge funds.

At present, T8 Energy Vision holds only seven positions (approximately 11% of net asset value) that overlap with the Clean Energy Index’s 154 holdings. T8’s exposure is deliberately 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 believe that the Iran conflict has materially strengthened the long-run case for increasing energy diversification and especially 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 evolving technology and increasing manufacturing scale (they will continue to get cheaper). We regard this as a structural positive factor which is not reflected in broader market positioning.

Outlook

The boom in artificial intelligence (AI) continues to accelerate and a clear beneficiary of the AI boom has been semiconductor (microchip) stocks which are experiencing record-breaking boom (Philadelphia Semiconductor Index +169.6% year-over-year), driven by demand from data centres.

We consider this an excellent leading indicator for electricity demand growth on the basis that microchips in data centres require a significant amount of electricity to operate. In 2025, data centres consumed over 4% of total US electricity. Consensus projections assume electricity demand from data centres more than doubles by 2030, driven by 10-20% per annum growth rates. In certain regions, total electricity demand is expected to quadruple (i.e. Virginia, US is referred to as ‘data centre alley’).

You will recall that we wrote recently that capital commitments to building AI infrastructure have increased materially over the last six months (our assessment of consensus aggregate hyperscaler capital expenditure for 2026 had 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). Our latest assessment indicates that consensus expectations have increased a further 5-10% following company reporting for the March quarter with Google and Meta announcing upgrades to capital investment budgets (we tally the mid-point at US$710 billion based on Google’s guidance for US$180-190 billion, Meta’s guidance for US$125-145 billion and consensus broker research forecasts for Amazon of US$200 billion and Microsoft of US$190 billion).

More capital investment in data centres means more electricity will be required. The estimates for 2027 are even more staggering and range from US$900 billion to US$1400 billion.

This evidence that global energy demand growth is going to continue accelerating – especially in advanced economies. Electricity demand growth has accelerated to 2-3% per annum (from zero between 2005 and 2020). Demand growth of 2-3% would not be considered meaningful in many industries, however it is extremely significant for the electricity industry. This elevated demand growth is forecast to be secular and sustained beyond 2035.

The electricity industry is booming but so far it is yet to translate into excitement in electric utility stocks (S&P Global 1200 Utilities Index +17.0% year-over-year), which we consider a very attractive investment opportunity.

The world (and especially developed markets) needs significant amounts of new electricity generation capacity, rapidly, and our expectation is that this will be met by all generation types. 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.

Footnotes

¹ https://www.iea.org/reports/oil-market-report-march-2026