After a strong finish last week, closing up 0.7% on Friday, the S&P/ASX 200 Index (ASX: XJO) is kicking off the new week with a bit of a whimper.
In morning trade on Monday, the benchmark Aussie index is down 0.3% at 8,257.6 points.
As for the biggest listed companies, shares in Commonwealth Bank of Australia (ASX: CBA), Australia's biggest bank stock, are down 1.8%.
Meanwhile, shares in Australia's biggest mining stock, BHP Group Ltd (ASX: BHP), are up 0.5%, bucking the broader market malaise.
And shares in ASX 200 biotech giant CSL Ltd (ASX: CSL) are down 1.9%.
The overall weakness in the ASX 200 today follows a tough day in US stock markets on Friday. When the smoke cleared on Friday, the S&P 500 Index (SP: .INX) was down 1.3% while the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) ended the day down 2.2%.
Here's what looks to be dragging on investor sentiment today.
ASX 200 tracks US markets lower
Friday's strong retail sales data in the United States is a big headwind hitting US stock markets and filtering over to drag on the ASX 200 today.
In a classic case of good news for the economy and consumers is bad news for stock markets, this could lead to delayed and fewer interest rate cuts from the US Federal Reserve.
And it comes on the heels of a moderately hawkish turn from US Fed chairman Jerome Powell on Thursday.
"The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully," Powell said, spooking markets that have priced in a series of additional Fed cuts.
Commenting on the diminished outlook for those rate cuts pressuring US stocks and the ASX 200 today, Oxford Economics' Michael Pearce said (quoted by The Australian Financial Review):
The ongoing resilience of consumer spending and the upward surprises to the inflation readings over the past few months tilt the risk towards a slower pace of rate cuts.
On balance, we still expect the Fed to loosen by 25 basis points at the December meeting, but our subjective odds of a hold at the next meeting have increased over the past week.
Fundstrat Global technical strategist Mark Newton noted that caution may be in order through to the Christmas holidays.
"Equity trends remain bullish from early August but structurally have reached levels that represent a poor risk/reward over the next five to six weeks," he said.
Also holding back the ASX 200's performance today are rising concerns over renewed global trade wars when Donald Trump moves back into the White House.
Should the US revert to full protectionist policies, this could impact various parts of the Aussie economy and impact various companies.
China, Australia's largest trading partner, is particularly focused on the tariff front. Economists are flagging a potential hit to China's growth outlook from renewed Trump tariffs.
Goldman Sach's economist Hui Shan said (quoted by the AFR):
In our baseline scenario for 2025, we assume that the US effective tariff rate on Chinese goods increases by 20 percentage points and Chinese real exports remain flat after double-digit growth in 2024, as declines in US-bound exports are offset by increases in exports to other countries.
Under these assumptions, China's real GDP growth decelerates from 4.9% this year to 4.5% next year.
With today's intraday dip factored in, the ASX 200 remains up 16.9% over the past 12 months.
