The S&P/ASX 200 Index (ASX: XJO) is taking a tumble today.
The benchmark index closed down 0.4% on Friday at 8,294.10 points. In late morning trade on Monday, the benchmark Aussie index is enduring steep losses at 8,187.2 points, down 1.3%.
Today's retrace leaves the ASX 200 up 0.3% in the early days of 2025 and up 9.2% over the past full year.
As for some of Australia's biggest listed companies, BHP Group Ltd (ASX: BHP) shares are up 0.2% at $39.77; CSL Ltd (ASX: CSL shares are down 2% at $279.33; and Commonwealth Bank of Australia (ASX: CBA) shares are down 1.9% at $153.03 apiece.
Here's what's pressuring the wider market today.
ASX 200 catching US headwinds
The ASX 200 is following the lead of the United States' stock markets to head lower today.
In Friday trade the S&P 500 Index (SP: .INX) closed down 1.5% while the tech heavy Nasdaq Composite Index (NASDAQ: .IXIC) ended the trading day down 1.6%.
That puts the S&P 500 down 0.9% in 2025, while the Nasdaq has slipped 0.8%.
The sell-down in the US, which is pressuring the ASX 200 today, looks to be a classic case of what's good news for the economy can be bad news for markets.
On Friday, investors learned that the world's largest economy added more than 250,000 jobs in December, exceeding consensus expectations. US unemployment figures also ticked lower, surprising many analysts.
So, why are investors reacting by favouring their sell buttons?
Well, that's mostly because the unexpected strength in the US labour markets could keep upwards pressure on wages, which in turn could stall the Federal Reserve's efforts to bring inflation back down to its 2% target.
And if inflation surprises to the upside, we may not get the expected series of 2025 interest rate cuts from the Fed. Cuts that have already largely been priced in by the market.
What are the experts saying?
Commenting on the resilience of the US economy that's pressuring US stocks and the ASX 200 alike, Josh Gilbert, market analyst at eToro said, "The shift in rate cut expectations has been big. Fed officials indicated they expect just two rate cuts across their eight meetings this year, down from four 25bps cuts in their September projections."
And according to Bloomberg economists:
Recent FOMC [Federal Open Market Committee] communications indicate several members see the disinflation process as temporarily stalled or see risks that it could. December's CPI report is likely to support the view that it has indeed stalled, adding to the case for a careful approach to monetary-policy decisions in coming quarters.
The US CPI report is due out on Wednesday (overnight Aussie time).
Max Wasserman, senior portfolio manager at Miramar Capital (quoted by Bloomberg), added, "There is just too much optimism based on consensus thinking that the Fed's going to keep cutting interest rates. People are over-reliant on a Fed put."
On Thursday, in addition to learning the US December inflation data, ASX 200 investors will also receive the latest Australian labour data from the ABS.
Stay tuned.
