The Australian sharemarket edged up 0.3% last week. The Energy sector soared last week, gaining 5.4%, as renewed US sanctions on Russian oil drove crude prices 6.0% higher over the week. On the other hand, the Materials sector struggled, falling 2.0%, after a choppy week, attributed to lagging gold miners, despite lithium and copper miners rallying. The price of gold has finally hit a correction point, easing 3.3%. Gold miner Newmont felt the profit taking, losing 15.2%. Overall, it was a steady week with 8 out of the 11 sectors advancing, as investors balanced changing commodity prices, reinforcing Australia’s role in the global supply chain.
US sharemarkets continued to rise again last week, with all major indices posting fresh record highs. The gains were broad based, driven by cooler inflation data for September, strong Q3 earnings momentum and expectations that the Fed will soon move to a more neutral stance, away from the quantitative tightening cycle we have been in. 30% of the S&P 500 companies have now reported Q3 earnings, with earnings growth around 9% and 80% of them beating expectations so far. The Information Technology sector was the best performing, advancing 2.8%. Amazon (5.2%) was the stock standout, ahead of its Q3 earnings result later this week.
European sharemarkets also rose last week, supported by improving macroeconomic data and resilient Q3 earnings. The cyclical sectors were the key drivers, as trade tensions eased between China and the US, while stronger economic data also helped. Eurozone Purchasing Managers Index hit a 17 month higher, while in the UK softer inflation data triggered expectations of an interest rate cut. Positive performance was market wide, with 10 out of 11 sectors closing in the green. The Financial Services and Energy sectors were the best performing, advancing 3.8% and 3.6% respectively.
Rare Earths Revisited: A Strategic Shift Gains Momentum
Just over a week since the flare-up between the US and China over rare earths, the plot has thickened and Australia is now firmly in the frame.
In a move that cements the critical minerals issue as more than just talk, US President Donald Trump and Australian Prime Minister Anthony Albanese met last week and signed a landmark deal to co-invest in rare earth and critical mineral projects. The deal involved an initial US$3.0 billion commitment toward a total US$8.5 billion pipeline. It’s a clear signal that the West is serious about challenging China’s global dominance.
The timing worked in Albanese’s favour. After months of the media mocking his delayed access to the White House, the Prime Minister finally secured a meeting with Trump. Recent diplomatic tensions, including Albanese’s recognition of Palestine as a State and past criticism of Trump by our US Ambassador, former Prime Minister Kevin Rudd, likely didn’t help. Rudd’s past social media posts, which he has since deleted, included calling Trump “the most destructive president in history”. Still, Trump appeared willing to set aside past grievances and offer a cooperative front to counter China.
From reaction to strategy
China’s export restrictions on rare earth materials, likely triggered by Trump’s tariffs, prompted concerns about access to strategically important materials. Rare earths are used in everything from electric vehicles, wind turbines, defence systems and smartphones.
This new agreement reflects a shift to longer-term strategic planning. In addition to direct investment, the US-Australia framework intends to include measures like price support mechanisms, streamlined project approvals and increased scrutiny on asset foreign ownership.
Local implications
Australia’s Arafura Rare Earths attracted fresh investment, including a US$100 million equity injection via Export Finance Australia as part of Trump and Albanese’s new framework. Notably, the Australian Government had already loaned over AU$1.0 billion to Arafura to help develop its Nolans Project in the Northern Territory. Arafura’s share price jumped and its largest shareholder, Gina Rinehart’s Hancock Prospecting, stood to benefit.
However, this isn’t just about one company. It’s part of a broader effort to position Australia as a trusted, stable supplier of critical minerals to global markets.
The catch? It’s not cheap
Decoupling from China isn’t without cost. Rare earths produced outside China are more expensive and it’s unclear whether buyers will pay a premium for supply security. The US is hoping to solve this with price support mechanisms, including a floor price on neodymium and praseodymium, the magnets of the clean energy and defence future.
What this means for investors
This week’s developments suggest that critical minerals are likely to remain on the policy agenda. For investors, takeaways include:
For many risk-conscious Australian investors, rare earths have felt too uncertain for investment. That may change in the coming years, with this US co-investment deal one step in the right direction.
In Australia this week, all attention will be on the latest inflation data for the third quarter, with expectations for a 0.8% rise. In addition, we will hear from the RBA Governor Michele Bullock and get an insight into producer prices later in the week.
Overseas, central banks will dominate, as we get the latest interest rate decision from the US Federal Reserve, Bank of Canada, Bank of Japan and the European Central Bank. While the US economy as measured by GDP is expected to expand by an annualized 3% for the last quarter.