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

• Equity markets tracked sideways in December with US markets detracting from better performances in Europe and Asia. US indices were impacted by another brief bout of scepticism about the outlook for artificial intelligence.
• T8 Energy Vision generated a positive return for the month, closing out a year in which it generated a return of +32.1% (in Australian dollar terms), outperforming global equities by 21.3 percentage points (MSCI World Index +10.7%, in equivalent terms), with lower realised volatility (a common measure of risk). Please refer to the monthly report for detail specific to the performance of the fund.
• We maintain a particularly positive outlook for the electricity sector (a key aspect of our focus area) 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

Equity markets tracked sideways in December with US markets detracting from better performances in Europe and Asia. US indices were impacted by another brief bout of scepticism in relation to the outlook for artificial intelligence (AI) and the associated data centre build-out. The catalyst was Oracle’s weak financial results which included a significant increase in guidance for capital expenditure and led to concerns about the company’s ability to fund it.

Looking ahead at markets overall, we remain of the view that investors should be mindful of a number of risks, including:

• elevated risks associated with the various geopolitical conflicts;
• elevated US debt levels;
• the unsustainably high US budget deficit;
• the likelihood that US government policy exacerbates these issues (at least in the short term);
• the US Federal Reserve losing its independence;
• the recent US Government shutdown which may have distorted vital economic data; 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 factors, combined with US equities indices trading near to all-time highs, create the risk of a short-term market correction. This 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. 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), which is a genuinely attractive attribute in addition to its well-known defensive characteristics.

Macroeconomic data

Interest rate expectations

While the commentary accompanying the 25-basis point interest rate cut at the December FOMC meeting was less hawkish than some in the market had feared, it was not especially dovish either. The FOMC is taking a ‘wait and see’ approach to interest rate policy as a result of still elevated inflation and notwithstanding the softening labour market. By the end of the month the market was pricing in ne interest rate cut for 2026 at the July meeting.

Inflation data

In the absence of the Core Personal Consumption expenditures Price Index (Core PCE) which wasn’t published due to the recent government shutdown, the Consumer Price Index (CPI) is the most reliable indicator of inflation. While Core CPI came in at 2.6% year-over-year which was cooler than market expectations for 3.0%, it remains elevated which is sub-optimal given there is still a risk of inflationary impacts from US-induced trade war.

Employment data

We believe the recent government shutdown, sudden replacement of the Bureau of Labor Statistics Commissioner Erika McEntarfer and dramatic decline in US immigration makes US labour market data more difficult than usual to interpret. The December non-farm payrolls reported 64 thousand new jobs created. While this was ahead of expectations for 50 thousand, the unemployment rate actually rose from 4.5% to 4.6% as a result of what economists are describing a ‘no-hire, no-fire’ environment whereby job openings, hiring and lay-offs all slowed markedly. The magnitude of jobs created is also an issue. This capped a year in which only 584 thousand new jobs were created, or approximately 50 thousand per month (you will recall that we had been accustomed to 100 to 150 thousand jobs per month being considered to have a more or less neutral impact on unemployment). Excluding recessions this was the weakest year in 22 years.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) was little changed at 89.1 from 88.7 in the prior month (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

Market impacts

Bonds

US Treasury yields declined at the short end of the curve, reflecting the US interest rate cut at the December FOMC meeting, however the yields for longer duration rose which most likely reflected the ‘wait and see’ message from the FOMC on the outlook for interest rate policy. Global bond benchmarks (Global Aggregate Bond Index +0.2%) were little changed. The yield curve steepened slightly but remains neutral with the 10-year/2-year spread at 69 basis points.

We remain mindful of risk at the long end of the curve on the basis that a yield of 4.5-5% 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 weakened (US Dollar Index -1.1% to 98), although remains towards the upper end of the range (US Dollar Index 97-100) observed during the second half of 2025. Looking ahead we anticipate headwinds for the US dollar driven by falling US interest rates and the momentum of emerging markets coming into 2026. We believe that questions in relation to the US currency’s role as a global safe haven (driven by investor concerns about US economic policies such as tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics) may add to the headwinds facing the US dollar by encouraging capital to diversify into other markets.

Commodities

The momentum in precious metals continued although gold (+1.9%) lagged the ‘precious-industrial metals’ such as silver (+26.8%) and platinum (+23.3%) which went parabolic. Copper (+10.9%) continues to benefit from supply disruptions at major mines, pushing the price to all-time highs in nominal terms. The other industrial metals followed with aluminium (+4.4%) and even nickel (+12.8%) experiencing a powerful move. while the headwinds for crude oil (-3.7%) continued with the commodity experiencing a combination of weak demand and rising supply from OPEC.

Equities

While US equity indices (S&P 500 Index -0.1%, Nasdaq 100 Index -0.7%) tracked sideways to lower, global equities (MSCI World Index +0.7%) fared better as a result of major Asian (KOSPI Index +7.3%, NIKKEI 225 Index +0.2%) and European (DAX Index +2.7%, FTS 100 Index +2.2%) markets.

Within the US, utilities (-5.3%) was the weakest performing sector which was most likely the result of profit taking (until December, utilities had outperformed the S&P 500) and a reaction to the upward movement in the US Treasury yield curve.

From a factor perspective, value stocks (+0.5%) outperformed growth stocks (-0.7%) and large caps (Russell 1000 Index -0.1%) outperformed small caps (Russell 2000 Index -0.7%).

Future energy stocks

The reversal in future energy stocks continued (Clean Energy Index -2.6%). The poor performance of the Goldman Sachs ‘highest short interest basket’ (-6.9%) also continued, indicating that stocks with high short interest remained under pressure and we expect that this also contributed to the weakness in the clean energy sector.

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).

We believe that electricity is the key constraint to the growth of artificial intelligence. Electricity is much more scarce than the risk capital required to fund the development of AI models and build the data centres.

The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their supply chains, including critical raw materials).

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 (175 basis points of cuts so far in this cycle) is an additional tailwind for electric utilities and their supply chains (these industries have historically displayed very high sensitivity to interest rates). We expect that falling US interest rates will remain a tailwind on the basis that the consensus ‘neutral’ interest rate is between 2.25% and 3.25% indicating that further easing remains the base case.