The Australian share market is expected to remain volatile this week with investors nervous about the looming federal budget.
AMP chief economist Shane Oliver believes the local market will open slightly ahead of Friday’s close, but it may not stay there for long.
Australian shares edged higher on Friday despite the US market’s 0.1 per cent dip on the back of rising tensions between Ukraine and Russia.
Dr Oliver said the local market was boosted by a rise in the prices of commodities including oil, gold and copper.
“That’s pointing to a flat to slightly positive start for our market,” he said.
“We’ll probably see the market open up slightly, maybe five to 10 points, but a lot depends on the news regarding Ukraine.”
Continued speculation about the May 13 federal budget and the Reserve Bank’s monthly interest rate decision are predicted to have the biggest influence on local investors this week.
The Australian market bucked global trends last week to fall 1.3 per cent following predictions of income tax hikes, Dr Oliver said.
“Speculation around those tax hikes is going to remain a key factor for our markets,” he said.
“If we see those tax hikes they would be negative for consumer spending and therefore for retailing stocks.”
The Reserve Bank is widely tipped to keep interest rates on hold for the eighth month in a row on Tuesday.
Economists believe aggressive cuts in the past are having a positive impact but it’s too soon for the Reserve Bank to starting raising rates.
A glut of local economic data to be released this week – including figures on building approvals, retail sales and employment – could also have an impact, but budget unrest is expected to dominate.
“Investors know the damage austerity caused to Europe when they went through it, so there’s a fear we might see the same here,” Dr Oliver said.
At Friday’s close, the benchmark S&P/ASX200 index was up 9.3 points, or 0.17 per cent, at 5,458.1 points while the broader All Ordinaries index was up 8.4 points, or 0.15 per cent, at 5,438.8 points.