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.

Market risk appetite rebounded during May while key economic data (and expectations in relation to rate cuts) tracked sideways. The US Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index was unchanged at 2.7% in April, relative to its stated target of 2%. Core PCE (a measure of underlying inflation) came in at 2.8%, also unchanged on its March level. While this headline doesn’t demonstrate any progress in the battle against inflation, we believe the key point is that we are much nearer the end of the interest rate cycle than the beginning (supported by inflation’s level in absolute terms and the fact that its trajectory continues to trend lower overall). Further, we reflect that expectations in relation to the trajectory of inflation (and therefore the trajectory of interest rates) have been pushed out based on an assumption that the economic data will be linear and predictable when this is unlikely to be the case.

The bond yield curve shifted downwards, and bond prices rose with the Global Aggregate Bond Index +1.3%, while yields on 10-year US Treasuries contracted 18 basis points to 4.50%.

The US dollar weakened (-1.5%), reflecting the upward shift in risk appetite.

Global equities rose (+4.2%) with US indices leading the way and reversing the prior month’s move (S&P 500 +4.8%). Major regional indices generally trended higher (with the exception of China -0.6%) but trailed the US.

At sector level within the US market, the utilities sector (+8.5%) continued its recovery and was only eclipsed by the technology sector (+10.0%). Technology’s performance (as well as US and global equities to a degree) was driven by the largest technology stocks, especially Nvidia (NVDA US +26.9%) which reported better than expected results for the first quarter. The energy sector (-1.0%) was the only sector in the red and contracted for a second month, driven crude oil (-7.1%) which declined on the back of data indicating a weaker demand environment (especially for gasoline in the US) and easing concerns around global supply risks.

Within commodities, copper (+0.2%) ran out of momentum (following its powerful +12.8% move in April) and the attention shifted to silver (+15.6%) driven by a combination of industrial demand from the solar industry (the photovoltaic solar industry accounts for 15-20% of total demand, growing at approximately 20% per annum) and as a precious metal for investment purposes, similar to gold bullion (+1.8%), which also continued to strengthen.

In terms of factors, growth (+5.9%) relative to value (+2.9%) was the most decisive factor, while market capitalisation had a more modest impact with small caps (+4.9%) narrowly outperforming large caps (+4.6%) which was consistent with their sensitivity to risk appetite.

The Clean Energy Index (+12.3%) moved directionally in line with global equities but considerably more powerfully than small caps (the Clean Energy Index should be considered a sub-set of small caps on the basis that its median market capitalisation is US$2 billion), which would appear to indicate that the move was driven by sector/industry-specific factors. The key industry was the solar sector (+19.7%) which rebounded following its draw-down in the prior month.