Chart in Focus

MACRO

Electrifying gains: Renewables beat coal for the first time in 100+ years

The Iran conflict has served as a reminder of the global economy’s dependence on imported oil and gas. It has also highlighted why having more non-fossil fuels as part of the global energy mix is potentially positive for energy security.

The energy transition is a complex long-term structural shift that will unfold in a non-linear fashion. Both setbacks and leaps forward are going to happen along the way, but the overall direction of travel is set.

Rising electricity demand is brightening prospects for a variety of companies that are enabling electrification. For utilities, that means grid modernisation and expansion are becoming important drivers of growth potential. Firms involved in the provision and maintenance of transmission systems, grid automation software and other infrastructure that help integrate renewable sources into the grid are also potential beneficiaries. Another area with strong growth prospects is among firms whose products can improve data centre energy efficiency amid the AI boom. 

MACRO

A tale of two consumers: Resilient spending amid faltering sentiment

US consumer spending has remained resilient, even as confidence has deteriorated. This divergence is not a contradiction; rather, it reflects a more bifurcated economy, where strength is concentrated in select pockets and risks are becoming increasingly asymmetric. This has resulted in a ‘K‑shaped’ dynamic in which higher‑income segments remain resilient while more vulnerable cohorts face mounting pressure.

Consumption is holding up largely because of who is spending. Higher‑income households — accounting for just over half of total US personal income — remain relatively insulated from inflation and a softening labour market. Their continued spending, particularly on services, is sustaining aggregate demand. In contrast, delinquencies are rising among lower‑income households. As a result, headline growth is increasingly being supported by a narrower base of consumers.

Spending resilience has also found support from households drawing down savings to smooth consumption. But while this supports near‑term growth, it is not without cost. As savings buffers erode, consumption will become more sensitive to income growth and labour‑market conditions. At the same time, declining consumer sentiment points to concerns around persistent inflation, driven by heightened uncertainty around supply dynamics and broadening cost pressures.

This K‑shaped environment underscores a more selective opportunity set for investors. Exposure to structurally supported demand and higher‑income consumers is likely to be rewarded. At the same time, inflation uncertainty remains elevated, with the path to sustained disinflation unlikely to be linear, reinforcing the case for inflation‑aware portfolio construction.

Seemingly robust headline data should also be interpreted with caution, as they may mask underlying fragilities, highlighting the need for disciplined risk management and a focus on the quality and drivers of growth rather than aggregate strength alone.

MACRO

Beyond the bubble: Unlocking opportunities from AI-driven labour trends

As AI continues to drive returns while simultaneously fuelling bubble concerns, shifting focus to its long-term structural impact may yield more stable opportunities.

Capital Group recently conducted a survey of US-based HR decision-makers to evaluate how AI adoption is reshaping hiring practices, workforce composition, and productivity. The findings reveal a pronounced “barbell” effect: AI integration is curtailing opportunities for early-career hires while driving increased demand for experienced professionals.

This is underpinned by two key factors:

• Automation of routine tasks, historically the domain of entry-level roles.
• Heightened need for skilled professionals capable of managing and deploying AI technologies effectively.

While investor attention has largely focused on hyperscalers and big tech, the labour market shift outlined offers a less-explored opportunity. Corporate budgets are likely to expand beyond AI integration to include learning and development aimed at upskilling existing staffed. Education and professional training providers stand to benefit from this secular demand. Positioning portfolios to capture this area of adjacent growth is a compelling strategy.

MACRO

GDP growth picking up across Europe

Europe is undergoing one of the most significant economic shifts in modern history, moving beyond austerity towards a more proactive strategy grounded in investment, industrial renewal and enhanced security. 

Recent structural reforms and fiscal stimulus represent a decisive shift toward resilience and competitiveness. While geopolitical risks persist, the policy mix of EU-wide initiatives and national programmes, anchored by Germany’s €900 billion to €1 trillion fiscal pivot, create a robust foundation for growth. 

For investors, the implications are clear: sectors aligned with infrastructure, energy transition, defence, and industrial modernisation offer attractive opportunities over the medium to long term.

MACRO

Weaker dollar, stronger euro for 2026?

Structural tailwinds that have supported the US dollar over recent years are fading, arguing for a more bearish view on the greenback heading into 2026, according to Capital Group currency analyst Jens Sondergaard.

During its latest bull run, the dollar has benefitted from domestic growth in the US, higher real interest rates relative to peers and ongoing appetite for American assets. But with global growth now converging, and the Federal Reserve starting to cut rates as the European Central Bank hikes, these shifts could signal a tactical window of USD weakness, especially versus the euro and the yen.

While the cyclical bull run for the dollar may be nearing an end, however, its structural dominance in the global financial system remains firmly intact. 

It continues to serve three roles in the global financial system: as the leading currency for international trade and cross-border capital flows, the dominant component of official reserves, and the private sector’s preferred store of value during periods of stress. 

Thus, while a tactical, possible extended cyclical decline in the dollar is possible, the scale of the US economy and its financial markets should continue to support the currency’s leading position.

FIXED INCOME

How sustainable is US debt?

With debt to GDP levels rising around the world, investors are questioning the sustainability of this situation. To be clear, there is no indication a crisis is imminent: the US government has operated with a deficit for much of its existence, for example, and this has not resulted in significant challenges for either the bond market or broader economy. 

That said, increasingly perilous debt dynamics could eventually create problems without some sort of corrective measures. To reverse climbing debt, one of four things (or a blend) is needed: higher inflation, financial repression, austerity or higher growth. 

EQUITY

Great global restructuring: AI as a productivity driver  

Throughout history, several technological breakthroughs have emerged to transform industries and substantially raise productivity. The steam engine revolutionised transportation and manufacturing, for example, while electricity transformed industry and households. Moving through time, the internal combustion engine again disrupted transportation, the semiconductor created computers, and the internet has changed every aspect of commercial and personal life. 

One thing these revolutions have in common is that their ultimate impact was drastically underestimated. If you look at the personal computer boom, for example, original assessments of related productivity growth and other economic impacts were far too cautious compared to the gains that eventually materialised. 

A critical question today is whether we are making the same mistake when it comes to artificial intelligence. Whether AI will have a similar impact to these previous breakthroughs is a key part of our latest research on the Great Global Restructuring.

EQUITY

Interest rates versus equity valuations in Japan: Can the ceiling rise? 

Can rising inflation lift the ceiling on Japanese equity valuations?

After several decades, the country appears to be escaping stagnation, which may bring important consequences for investors, including higher interest rates. Perpetually low rates have stopped price/earnings ratios on Japanese companies rising much above 17 times since 2000, compared to a 10-year average nearer 20 times for US equities.

Longer term, it is plausible to imagine Japanese rates rising to 2% or above thanks to higher productivity growth and inflation, opening the possibility of the market P/E climbing to 20-25x. Support for this came with Sanae Takaichi’s election as prime minister, with her expansionary policies expected to encourage demand-driven inflation.