The Australian share market is expected to face a bout of renewed volatility as recent strong gains begin to falter, dealers said on Friday. For the week ending May 9, the benchmark S&P/ASX 200 rose 71.4 points or 1.25 percent to 5,771.8, adding to a gain of almost five percent in the previous fortnight.
Chief economist at AMP Capital Investors Shane Oliver said the Australian market may be about to run out of steam. "Shares have had a solid rally from their March lows, but are now looking a bit toppy," he said.
"We expect a renewed bout of weakness ... as credit markets remain difficult and, more importantly, global and Australian economic conditions continue to deteriorate leading to profit downgrades. "However, it is unlikely that shares will fall below their March lows."
Oliver said the market's major focus would be the first budget to be handed down by Prime Minister Kevin Rudd's centre-left Labour government, which was elected last November.
He said Treasurer Wayne Swan was likely to unveil a surplus of more than 20 billion dollars (18.8 billion US) as he seeks to rein in spending while also delivering 30 billion dollars in tax cuts promised during the campaign. "In an environment of increasing economic uncertainty and growing pressure on households an aggressive tightening in fiscal policy is unlikely and the income tax cuts may not be such a bad idea after all," Oliver said.
"The budget is unlikely to alter the outlook for interest rates or have a major impact on financial markets, but it should help to develop Wayne Swan's and the governnment's economic credentials. Economic data due out next week will outline latest developments in housing finance, business confidence, consumer confidence and wages.