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

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

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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.

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