Why is the ASX 200 ending the week with a whimper?

The ASX 200 is taking a beating on Friday. But why?

| More on:
A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After setting a series of new all-time highs in March, April is offering a more difficult first week for the S&P/ASX 200 Index (ASX: XJO).

In this shortened holiday trading week, the benchmark index closed down 0.1% on Tuesday before plunging 1.3% on Wednesday.

Yesterday saw a reprieve, with the index closing up a healthy 0.5%, bringing it back to a 12.9% six-month gain.

So, why is the ASX 200 reversing course again and tumbling 0.9% in morning trade today?

What's spooking ASX 200 investors on Friday?

It's not just the ASX 200 under selling pressure today.

Overnight the S&P 500 Index (SP: .INX) closed down 1.2%. Notably, the S&P 500 was well into the green for most of the day, before plummeting 1.8% in the final two hours of trade.

It was a similar picture on the Nasdaq Composite Index (NASDAQ: .IXIC). The tech-heavy index lost 2.3% in the final two hours of trade to close the day down 1.4%.

And the ASX 200 is facing the same combination of headwinds today that dragged down US markets while most of us were asleep.

Interest rates and inflation

The first bugbear dragging on stock markets is becoming a familiar refrain for ASX 200 investors.

Namely sticky inflation and the resulting potential of delayed and fewer interest rate cuts.

The latest round of jitters looks to have been stoked by US Federal Reserve Bank of Minneapolis president Neel Kashkari.

Kashkari said the US' inflation data in January and February were "a little bit concerning". He added that the Fed will want to be more confident inflation is on track to return to its 2% target range before lowering interest rates.

And he likely sent US and ASX 200 investors to their sell buttons when he added that rate cuts might not be needed "at all".

According to Kashkari (courtesy of Bloomberg):

In March I had jotted down two rate cuts this year if inflation continues to fall back towards our 2% target. If we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all.

ASX 200 and the Middle East

Atop fears that interest rate cuts may be longer in coming and fewer in number, ASX 200 investors also appear concerned over a potential serious escalation in the Middle East conflicts.

Commenting on the sudden retrace in US stock markets earlier today, National Australia Bank Ltd (ASX: NAB) said (quoted by The Australian Financial Review), "US equities opened higher and retained their initial gains until an hour or so ago."

NAB continued:

Sentiment was dented following news of a security cabinet meeting in Israel following which Israeli Prime Minister Netanyahu said that his country will operate against Iran and its proxies and will hurt those who seek to harm it.

And if investors need any more uncertainty, there's the US jobs report, which comes out at 11:30am AEDT today.

US employment is broadly expected to remain strong with fewer layoffs and more hirings. If the data surprises to the upside, it could be a case of 'good news is bad news'. Meaning good news for the US economy and workforce could delay any Fed rate cuts.

And that could throw up another medium-term headwind for US stocks and the ASX 200.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop
Opinions

1 ASX 200 dividend stock down 20% to buy right now

This beaten-up ASX share could be a top pick for dividends and stability.

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Opinions

2 cheap ASX 200 shares I'd buy in May

I think these stocks are too cheap to ignore.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Share Gainers

Why Gentrack, New Hope, Nuix, and Star Entertainment shares are charging higher

These shares are starting the week strongly. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Core Lithium, Duratec, Galan Lithium, and Michael Hill shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A trio of ASX shares analysts huddle together in an office with computer screens all around them showing share price movements
Broker Notes

Why brokers just revised their outlook for these 4 top ASX All Ords shares

These four ASX All Ords companies were just re-rated by top brokers.

Read more »

Invest written on a notepad with Australian dollar notes and piggybank.
Opinions

I'd invest $10,000 into these excellent ASX shares for the long term

I’m bullish about these top stocks.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Materials Shares

Why did this ASX All Ords stock just crash 24%?

What is weighing down this lithium stock today? Let's find out.

Read more »