Key insights from the week that was.
With no data of note for Australia, the spotlight largely remained on the announced agreement between the US and Australia to jointly fund an expansion of rare earths mining and refining over the next 5-10 years. The intention behind the deal is clear. The US is concerned over China’s capacity to control global rare earth supplies and related technology, and so is determined to build out its own supply chain. Australia has suitable natural resources and logistics, and hence a targeted expansion of refined supply is in the best interests of both nations. The initial projects and overall structure of the deal have been well covered in the press throughout the week. Chief Economist Luci Ellis instead looks at the geopolitical context of the deal and its significance to both military and technological capacity.
Across the Tasman in New Zealand, at 1.0% the Q3 CPI printed in line with our expectations and just a touch above the RBNZ’s forecast. The result leaves annual inflation at 3.0%yr, the top end of the RBNZ’s range. Our New Zealand team do not expect the result to spark concern at the RBNZ, however, with the acceleration in inflation from Q2 to Q3 due to non-cyclical elements, specifically food and local council rates. In contrast, price increases for housing and discretionary retail were muted, consistent with the soft tone of recent spending data. Our NZ economics team continue to expect inflation to move towards the middle of the target range in 2026, allowing the RBNZ to continue to ease in the near term in line with activity conditions.
Further afield, markets were attuned to developments in China. Early in the week, Q3 GDP data came in broadly as expected at 5.2%ytd, putting authorities on target to achieve 5.0% growth for the full year. The monthly partial data for September painted a more sombre picture.
Fixed asset investment fell 0.5%ytd, in part reflecting the impacts of China’s anti-involution policies aimed at curbing current oversupply but, in time, continuing to re-direct investment into areas with the highest returns and sustainable profit margins. Retail sale growth also slowed to 3.0%yr, a lack of confidence in the outlook for the labour market and wealth continuing to weigh on discretionary demand.
It was with this backdrop that Chinese authorities confirmed their new five-year plan at the Fourth Plenum. Initial headlines point to authorities remaining focused on technological development and the scaling up of related industry. There is also a focus on the consumer and domestic demand highlighted by “increase[d] efforts to guarantee and improve people’s livelihood[s]” and an ambition to “improve the social security system”. The call to promote “high-quality development of the real estate sector” arguably highlights that households not only need more quality housing and community infrastructure to build lives in, but also the ability to accrue wealth sustainably throughout their lifetime. In our view, the focus on lifting domestic demand is necessary if growth is to remain near 5% come 2026 and beyond.
Elsewhere in Asia, Sanae Takaichi became Japan’s first female Prime Minister after securing a coalition between her Liberal Democratic Party and the right-leaning Japan Innovation Party. Having been PM Shinzo Abe’s protégé, Takaichi is known to be a fiscal expansionist, having previously put forward policies such as scrapping the gasoline tax and providing additional cash and tax credits to households. Recent bond auction results in Japanese bond markets have been weak suggesting markets are unsettled by some of her policies, particularly her affinity for raising issuance to fund additional spending. However, extensive fiscal expansion is unlikely given the minority government. Takaichi’s focus on improving the wellbeing of citizens has been received well, her approval rating standing at 71% according to a Yomiuri survey, mirroring that of Abe’s first term.
