Why is the ASX 200 eerily quiet today?

The Australian share market is ghostly quiet today. Could it have something to do with interest rates?

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published May 14, 2024 3:58 pm AEST

It feels like a standoff from an old Western movie across today's Australian share market. All that's missing now is a tumbleweed. I suppose the 'tumbling' of the S&P/ASX 200 Index (ASX: XJO) qualifies, rolling 0.4% lower during Tuesday trading.

Aside from BHP Group Ltd (ASX: BHP) being rejected a second time by Anglo American, the Australian Securities Exchange is a suspiciously quiet house today. Even investors are collectively lifting their foot off the gas, with trading volumes nearly a quarter below their average.

What has the market spooked?

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price — Image source: Getty Images

Waiting for a sign

Interest rates can sway whether people invest in the share market or not. As we've seen over the past year or so, expectations of future rates can boost or batter the ASX 200 in the short term. If you can earn an attractive return on cash, you're less inclined to buy shares — the opposite is also true.

Much of the macroeconomic musings are largely meaningless if you're a long-term investor like me. However, markets are mostly driven by traders day-to-day. So when the signals become mixed or unclear, the amount of day trading of stocks dwindles.

It appears today is one of those days.

In all likelihood, stock buyers and sellers are trying to gauge the possible outcome of two competing perspectives. And, it involves the big and hairy question of whether interest rates will go higher.

Treasurer Jim Chalmers' budget figures suggest inflation could fall back into the target band of 2% to 3% by the end of the year. Meanwhile, the Reserve Bank of Australia estimates their goal inflation rate won't be hit until mid-2025.

Furthermore, the government's budget might be the next sign to set interest rate expectations. If Chalmers reveals a sleuth of areas for spending, it could be seen as potentially inflationary. A tight budget could give investors confidence in rate cuts sooner rather than later.

ASX 200 in no man's land

Australia's benchmark index has been wandering relatively aimlessly in 2024.

Year-to-date, the ASX 200 has risen 1.3% to its 7,723 level. However, it's not as though it's been a steady 'up and to the right' trend. The Australian share market is down approximately 2% compared to 6 weeks ago, showcasing directionlessness in the short term.

A foggy outlook means investors will drive a little slower — which could be what is panning out today.

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