Insights - June

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.

Sentiment was overall negative in June with the exception of the largest US technology stocks. This makes the positive movement in global equities a somewhat misleading headline – the majority of markets experienced drawdowns while the US technology sector continued to race higher. Risk appetite was poor actually notwithstanding economic data which was interpreted as increasing the likelihood of interest rate cuts before the end of the year (inflation decreased and unemployment increased).

The unemployment rate increased to 4.0% (which is still considered low by historical standards), and the personal consumption expenditures (PCE) price index (the US Federal Reserve’s preferred measure of inflation) ticked down 10 basis points to 2.6% in May against the prior month’s reading. Core PCE (a measure of underlying inflation) also contracted to 2.6%. Inflation remains slightly elevated relative to the US Federal Reserve’s stated target of 2%.

The US Treasury yield curve continuing to shift downwards (yields on 10-year US Treasuries contracted 10 basis points to 4.40%), the US dollar strengthening (+1.1%) and small cap US equities declining (-1.1%) were all indicators coincident with a contraction in overall risk appetite.

Global equities rose (+1.9%), notwithstanding weakness in most major regional indices other than the US. Momentum in the largest US technology stock propelled US indices higher (S&P 500 +3.5%) for a second month while increased uncertainty following European elections placed the region’s indices under pressure (France -6.4%, Germany -1.4% and United Kingdom -1.3%). Sluggish economic data saw China continue to weaken (-3.9%).

At sector level within the US market, the technology sector (+9.3%) came close to matching its extraordinary performance in the prior month, once again driven by the largest technology stocks, especially Nvidia (NVDA US +12.7%).

The utilities sector (-5.8%) reversed some of its gains from the prior month (possibly driven by profit taking, having rallied by nearly 30% since the beginning of October 2023) and together with materials (-3.3%) were the worst performing major sectors. The weakness in materials was driven by weaker industrial metals prices (copper -4.6%, aluminium -4.6% and nickel -12.4%).

Analysis by factor emphasised the narrowness of the rally in global equities with growth (+6.7%) outperforming value (-1.1%) and large caps (+3.2%) outperforming small caps (-1.1%).

The Clean Energy Index (-10.6%) gave back its strong gain from the prior month. While it moved directionally in line with small cap equities, its move was considerably more powerful (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). Sentiment towards clean energy was buffeted by various factors during June which increased uncertainty in the short term, including:

• The surprise European election results which may signal less supportive policies towards renewable energy;
• News flow in relation to US import tariffs on Chinese energy technologies (including solar, batteries and electric vehicles); and
• Opinion polls in relation to the US presidential election shifting in Donald Trump’s favour (Donald Trump has been openly critical of renewable energy, although solar electricity generation in the US doubled during his first term as president).

Within clean energy, the solar sector (-16.7%) experienced the most pressure followed by lithium batteries (-10.7%) and electric vehicles (-8.6%).

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