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First Up

UPDATED 22/10/2025 09:29

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The ASX200 continued to advance in a “three steps forward, two back” fashion on Tuesday, posting a new all-time high before fading into the close. Gains were broad-based, with over 60% of the main board rising and 10 out of the 11 main sectors, with only the defensive facing consumer staples slipping lower. The materials sector returned to its winning way, advancing +1.7% with the big iron ore miners driving the index higher, while gains by gold, lithium, copper, and the volatility in the rare earths stocks following the Trump-Albanese agreement caught the eye – it’s likely to be a different story this morning.

The US and Australia will each spend $1 billion over the next six months on projects with additional outlays after that toward an $8.5 billion pipeline of critical minerals projects.

Initial beneficiaries include $US200 million to a West Australian gallium plant owned by Alcoa (AAI) and $US100 million to the Gina Rinehart-backed Arafura (ARU) Nolans rare earths mine. Interestingly, the stocks initially surged on the news, before finishing near their intra-day low with AAI up +7.5% while ARU closed unchanged after being up +25% on the opening bell. Lynas fared even worse, ending the session -7.6% lower after also opening higher.

The negotiations by Prime Minister Albanese were impressive, but at what cost, with Beijing very unlikely to welcome the agreement.

The deal, which includes offering guaranteed price floors for new producers and blocking asset sales on security grounds, flies in the face of China, which processes ~90% of the world’s rare earths and dominates refining of lithium, graphite and gallium. However, we must question if this is a play by President Trump ahead of his meeting with Xi Jinping at the upcoming APEC Summit in Seoul at the end of the month. We wouldn’t be surprised if the rare earths picture looks very different in November, and can understand why investors/traders took profit into strength following Tuesday’s news. One throw-away comment by Trump signalled a warning to us: “In about a year from now, we’ll have so much critical minerals and rare earths that you won’t know what to do with them. They’ll be worth about $2.”

We believe the outperformance by the miners has further to play out, with yesterday’s moves likely to extend into Christmas after some consolidation starting this morning.

Overseas markets were mixed overnight as sector rotation reigned supreme. In Europe, the German DAX and UK FTSE closed up +0.3%. In the US, the S&P 500 closed marginally higher, while the rate-sensitive small-cap Russell 2000 index retreated -0.5%. However, it was a night where precious metals dominated the news, with gold plunging ~$US230 on mass liquidation, shaking confidence in the precious metals bull market in one sharp session.