We share our latest observations on global asset markets

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

Key points

• A tentative ceasefire in the Iran conflict saw risk assets stage a blistering rally, rebounding from the indiscriminate sell-off in the prior month. While the Straits of Hormuz remain more-or-less closed (leaving energy markets, as well as many commodities and major downstream industries in limbo), the market appears singularly focused on the Trump Administration’s de-escalation signals.
• T8 Energy Vision rebounded with equity markets. Please refer to the monthly report for detail specific to the performance of the fund.
• Over a longer horizon, 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 its strong performance to the growing realisation that energy is the key obstacle to the growth of artificial intelligence (and therefore a unique investment opportunity).
• We maintain our structurally bullish outlook for the electricity sector. Investors will not be able to get sufficient exposure to this thematic via major indices (we estimate electric utilities and their supply chains account for only 3-4% of global equities indices) and therefore a deliberate allocation to a strategy such as T8 Energy Vision should be contemplated.

Market update

Summary

A tentative ceasefire in the Iran conflict saw risk assets stage a blistering rally, rebounding from the indiscriminate sell-off in the prior month. While the Straits of Hormuz remain more-or-less closed (leaving energy markets, as well as many commodities and major downstream industries in limbo), the market appears singularly focused on the Trump Administration’s de-escalation signals.

While an unresolved Iran conflict, energy shocks, inflation shocks, slowing global growth and uncertainty in relation to interest rates at the same time as an accelerating boom in artificial intelligence (AI) capital investment paints a complex and overall mixed picture, our key longer-term takeaway so far is that the Iran conflict will be the catalyst for energy de-globalisation and diversification for many major economies – especially in the Asia Pacific (particularly Japan, South Korea and Taiwan) and Europe (which is experiencing its second energy crisis in 4-years).

This, and the growing realisation that energy is the key bottleneck for the growth of AI, particularly in the US (in China, computational capacity/access to microchips appears to be the greater obstacle), contributes to our very positive outlook for the electricity sector.

We believe that the size of the opportunity warrants direct allocation. Investors will not be able to get sufficient exposure to this thematic via major indices (we estimate electric utilities and their supply chains account for only 3-4% of global equities indices) and therefore a deliberate allocation to a strategy such as T8 Energy Vision should be contemplated.

Macroeconomic data

Inflation data

The Federal Open Market Committee (FOMC)’s preferred measure of inflation, the Core Personal Consumption Expenditures Price Index (Core PCE) for March increased, coming in at 3.2% year-over-year, an increase of 20 basis points on the prior reading, which was in line with expectations.

Inflation appears likely to remain the key variable in relation to interest rate policy. It may also be the only factor capable of shifting the balance of opinion on a divided FOMC. The heightened importance of inflation to US interest rates and the importance of interest rates to market risk appetite makes inflation the most important macroeconomic factor at this time as we await the full impact from the Iran conflict.

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 March indicating the creation of 178,000 new jobs (which was considerably above expectations for 65,000 combined with a material downward revision to the prior month’s estimated contraction from 92,000 to 133,000) which saw the unemployment rate drift 10 basis points lower to 4.3%.

Unless we see a significant and sustained deterioration in the labour market (i.e. an unemployment rate approaching 5%), inflation will remain the most important variable.

Consumer confidence

Consumer confidence remains subdued with a level of 92.8 in April, little changed from 92.2 (upwardly revised from 91.8) 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). With energy costs rising sharply for consumers, we expect these readings to deteriorate further in the near term. Surveys indicate that more than 80% of US consumers are experiencing meaningful financial pressure from gasoline prices at present levels.

GDP data

US GDP for the first quarter of 2026 came in at +2.0% quarter-over-quarter annualised (slightly below expectations for 2.3%, but above the fourth quarter reading of 0.5%) indicating a solid economic expansion.

At a global level, the IMF’s April 2026 World Economic Outlook lowered the 2026 global growth forecast to 3.1%, from 3.4% in 2025. The forecast downgrade was premised on the Iran conflict having limited duration. The IMF noted that downside risks dominate its outlook and that more severe conflict scenarios would see global growth decelerate further. The sharpest downgrades were concentrated in emerging market economies on the basis of their greater sensitivity to energy prices.

Considering this a whole, it appears as if the US economy may be a short-term safe haven, in the event that the energy shock materially slows the global economy. It also appears as if the US will be more resilient to the energy shock than other major economies (especially Europe, Japan and Sout Korea) on the basis that it is more-or-less self-sufficient in terms of energy, while possibly not as resilient as China (on the basis of China’s extraordinary level of strategic oil reserves and notwithstanding its oil import dependence).

Interest rate expectations

April’s FOMC meeting saw the committee keep interest rates on hold (target rate at 3.5%-3.75%). Significantly, there were four dissenters (the last time four members dissented was October 1992) with one advocating for a rate cut and three which did not support the inclusion of an implied easing bias in the official statement.

The statement highlighted that while economic activity expanded, unemployment was little changed and inflation remained elevated. It added that the energy price shock together with Middle East tensions adds uncertainty to the outlook.

A significant development for monetary policy during April was the progress in the transition of the role of Chair at the Federal Reserve. Kevin Warsh, nominated by President Trump to succeed Jerome Powell on the expiry of his term on May 15, cleared the Senate Banking Committee (significantly on a party-line vote), proceeding to a full Senate vote. This was apparently the first fully partisan committee vote on a Fed chair nominee in the institution’s history which emphasises the fading independence of the central bank. Warsh, who served as a Fed Governor during the 2008 financial crisis, is regarded as hawkish on inflation but has signalled openness to pre-emptive cuts if AI-driven disinflation materialises.

During the post-meeting press conference, Powell signalled that he would remain on the Board of Governors indefinitely, pending the conclusion of an investigation into Federal Reserve renovations. This means incoming Chair Kevin Warsh will take Governor Miran’s expiring seat, so Powell’s decision to stay denies Trump an additional vacancy to fill on the board.

While the leadership and composition of the FOMC is an important medium-long-term factor, the shorter-term implications for monetary policy from the Iran conflict remain more significant, notwithstanding the perception that de-escalation is underway. While at the beginning of April, markets were pricing approximately 30% of an interest rate cut by the end of 2026, this had slipped to approximately 10% by the end of the month and at times during the month had started to price the potential for a hike.

While we observe the pivot in interest rate expectations and the movement in yields and remain mindful of the elevated level of macroeconomic uncertainty and that central banks are perceived to be able to achieve as much with words as they can with interest rate policy, our base case remains that the energy shock leads to an economic slowdown, higher unemployment, central banks considering the inflation shock to be transitory, and therefore lower interest rates.

Market impacts

A tentative ceasefire in the Iran conflict saw risk assets stage a blistering rally, rebounding from the indiscriminate sell-off in the prior month. While the Straits of Hormuz remain more-or-less closed (leaving energy markets, as well as many commodities and major downstream industries in limbo), the market appears singularly focused on the Trump Administration’s de-escalation signals.

Bonds

Global bond benchmarks (Global Aggregate Bond Index +1.2%) rebounded modestly.

The 10-year US Treasury yield rose 5 basis points to 4.37% as the whole curve shifted modestly further upwards leaving the shape of the curve little changed (the 10-year/2-year spread of 50 basis points is slightly below normal and typically indicates policy uncertainty).

We retain our concern about the long end of the curve that a yield of approximately 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 reversed (US Dollar Index -1.9% to 98) as investors rotated back into risk assets. The Euro (+1.5%), the Japanese Yen (+1.4%) and EM currencies (MSCI EM Currency Index +1.8%) all rose against the dollar. The Australian dollar surged 4.4% ahead of a widely anticipated interest rate hike by the Reserve Bank of Australia in early May.

Commodities

While de-escalation of the conflict saw the commodity complex generally rebound from the panic selling of March, we see scope for adverse impacts still to come following the closure of the Straits of Hormuz, the magnitude of which will only get worse the longer it remains closed or constrained.

While everyone has become aware 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, less people seem to appreciate the importance of the Middle East as a major source of gas-derived industrial commodities. Industries from fertilisers (therefore crop yields and food production) to a diverse range of industrial processes and products stand to be disrupted by the throttling of 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.

Energy

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. While the straits remain effectively closed, the de-escalation saw crude oil prices ease (June Brent futures -3.7% to $114 per barrel).

Precious metals

Counterintuitively in the context of the geopolitical risk backdrop, gold declined 1.1% (ending the month at $4,618 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 falling 1.9% (to $74 per ounce), while platinum and palladium rose 1.7% and 3.6% respectively.

Industrial metals

Copper (+5.3%) rebounded with the increase in risk appetite and aluminium (+0.3%) consolidated its gains of the prior month following supply disruptions related to the conflict and the impact that higher energy costs are expected to have on the aluminium smelting cost curve.

Equities

While global equities rebounded, the rally was notably narrow and centred on mega-cap US technology stocks and semiconductors. According to Nomura, ten stocks contributed approximately 70% of the 10.4% gain in the S&P 500 Index (and just five accounted for more than half the rally).

The MSCI World Index rallied 9.4% for the month. Outside of the US, South Korea (KOSPI Index +30.6%) was the standout on the basis that it comprises some of the worlds leading semiconductor stocks (Samsung Electronics +33.5% and SK Hynix +60.5%). Japan (Nikkei 225 Index +16.1%) also rebounded, buoyed by stocks vital to the semiconductor supply chain. Less exposed to technology, European indices lagged (FTSE 100 Index +2.0%, DAX Index +7.1%, and CAC 40 Index 3.8%).

Within the US, the conventional energy (oil and gas) sector reversed on weaker oil prices (S&P 500 Energy Index +10.3%) while every other except for health care (S&P 500 Health Care Index -0.6%) rallied. Communication Services (S&P 500 Communication Services Index +18.4%) and Information Technology (S&P 500 Information Technology Index +17.4%) led the charge given their exposure to technology stocks.

In terms of major style factors, value stocks (Russell 1000 Value Index +8.0%) and growth stocks (Russell 1000 Growth Index +11.9%) rebounded. While the comparable performance of large caps (Russell 1000 +10.0%) to small caps (Russell 2000 +12.2%) may be taken as an indication of a broad-based rally, the fact that equal-weighted indices (S&P 500 Equal Weighted Index +5.9%) materially lagged market-cap-weighted indices (S&P 500 Index +10.4%) emphasised the narrowness of the rally.

Future energy stocks

While the Clean Energy Index rallied 17.7%, it was once again notable that indices of stocks with high short interest outperformed (Goldman Sachs ‘highest short interest basket’ +14.2%), which we believe is indicative of aggressive short covering by hedge funds.

At present, T8 Energy Vision holds only eight positions (approximately 13% of net asset value) that overlap with the Clean Energy Index’s 155 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 positioning.

Outlook

The outlook for markets in the short-medium term is clearly subject to the duration and intensity of the Iran conflict. Notwithstanding the perception of de-escalation, we still see an extraordinarily wide range of plausible scenarios between a ‘best-case’ (conflict de-escalation; energy supply recovers; inflation spike considered transitory; interest rate cuts to support the economy; risk-on) under which we would expect our portfolio’s exposure to mid-cap supply chain of electricity generation and critical materials to outperform global equities, and a ‘worst-case’ (conflict escalates; prolonged energy shock; large inflation shock; economic recession; stagflation; interest rate hikes; risk-off) under which we would expect our electricity generation and grid infrastructure exposures to provide a defensive buffer.

We will continue watching developments 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.

Looking past the conflict, the boom in artificial intelligence (AI) continues to accelerate. You will recall that we wrote last month that capital commitments had 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).

It is also important to reiterate that the narrative has clearly 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.

As the AI boom evolves and accelerates, power grid access has overtaken chip supply (notwithstanding a record-breaking boom in semiconductor stocks, as indicated by the Philadelphia Semiconductor Index +150% year-over-year) 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.

Footnotes

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