Why is the ASX 200 pumping the brakes before the weekend?

Australian investors don't have the appetite today, here's why.

| More on:
A man looking at his laptop and thinking.

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

The S&P/ASX 200 Index (ASX: XJO) is buckling at the knees on Friday in a poor end to the week.

Nearing the final bell, Australia's leading index hovers around 7,577 points, tripping 1.4% lower. It's a meaningfully worse showing than what was displayed on Wall Street overnight, with the S&P 500 losing 0.46% after clawings its way back throughout the session.

Usually, Aussie investors can loosely attribute a red session to the ole 'when the US sneezes, Australia catches a cold'. But today, it appears Aussie equities are the first to have sniffles. So, what underlying 'illness' is making the share market mopey on the last day of the week?

A $60 billion copper anchor

The ASX 200 is an index weighted by market capitalisation. Being the largest company on the ASX boards — valued at $219 billion — Australian mining giant BHP Group Ltd (ASX: BHP) exerts a disproportionate influence over the market's daily return.

With that in mind, it's not hard to see why the benchmark is struggling when the BHP share price is down 4.5%. Rarely does such a large company move more than one or two percent in a single day. However, this is not your average day for the mega miner.

As discussed by my colleague, BHP revealed a bid for Anglo American worth around $60 billion. The deal would be the largest in BHP's history, which induces anxiety among investors given the uninspiring statistics around value creation from mergers and acquisitions.

BHP will bolster its resource portfolio with more copper, coking coal, and iron ore if the takeover goes ahead. Analysts at Jefferies believe the deal has merit, placing BHP in the driver's seat of more tier 1 assets across multiple jurisdictions.

Yet, the optimistic view has done little to calm the market's nerves today.

Rate rise worries rein in ASX 200

At a broader economic level, interest rates are likely a culprit to today's sheepish action.

According to some, rate cuts may not be the next move for the Reserve Bank of Australia. Judo Bank chief economic adviser Warren Hogan reckons the RBA might need to increase interest rates to 5.1% to kill inflation.

The threat of higher interest rates strains the equity market. If higher returns can be achieved on cash, demand for shares weakens. Furthermore, additional interest rates would squeeze the economy more, slowing consumer spending and risking deterioration in company sales.

The ASX 200 is down 0.6% year-to-date and only up 3.6% over the past year.

Motley Fool contributor Mitchell Lawler 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

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.

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 »

Young woman using computer laptop with hand on chin thinking about question, pensive expression.

Should you buy Telstra stock on a pullback?

Is this telco a buy for value hunters?

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Share Fallers

Why did the Core Lithium share price just crash 6%?

Investors are bidding down the Core Lithium share price today.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Share Gainers

Guess which ASX All Ords share just rocketed 25% on an earnings upgrade

Investors are bidding up the ASX All Ords share following an improved FY 2024 earnings outlook.

Read more »

Young man sitting at a table in front of a row of pokie machines staring intently at a laptop. looking at the Crown Resorts share price
Mergers & Acquisitions

Are Star shares now rolling the dice on a rescue bid?

Rumour is that a US-based casino operator is ready to revamp this fallen star.

Read more »