Australian sharemarket set to fall ahead of budget

The ASX 200 is poised for a weak opening, with Tuesday’s budget to be supplemented by a number of economic updates throughout the week.

All eyes are on the federal budget on Tuesday, with Australian markets watching for major changes from the Albanese ­government.

Futures markets were pointing to a weak open on Monday, pricing in a 15 point or 0.2 per cent fall to 7732.8, after a week of gains.

The S&P/ASX 200 closed above its 50-day moving average on Friday, up 1.57 per cent over five days to 7749.

This came despite indications rate cuts will be delayed and rising US markets.

The S&P 500 gained 1.6 per cent to close at 5222.68 on Friday, amid slight falls on the Nasdaq which closed 0.03 per cent lower at 16,340.87.

AMP economist Shane Oliver said shares were set to face a “more volatile and constrained” run after a “nice rebound from their falls in April”.

But Dr Oliver said he expected further gains in shares as “disinflation resumes, central banks ultimately cut interest rates and recession is avoided or proves mild”, pointing to a 9 per cent gain on the ASX 200 by the end of the year.

Dr Oliver noted the Reserve Bank still considered that inflation was too high and falling too slowly, despite holding the cash at 4.35 per cent last week.

He said the RBA was likely to leave rates on hold before cutting “late this year”.

Other commentators including Judo Bank chief economist Warren Hogan have warned the RBA may raise rates to combat inflation.

Dr Oliver said a delay in rate cuts risked a fall in house prices, as buyers were likely to hold back and distressed listings were set to rise.

As the government prepares to hand down its budget on Tuesday, Dr Oliver says the question is whether the government’s spending plan “makes the RBA’s job in fighting inflation easier or harder in the near term”.

“The key is that with inflation proving sticky the budget needs to take more out of the economy for the next financial year than it puts back in, so as to make the RBA’s job easier,” he said.

CommSec chief economist Ryan Felsman said the budget was “just a budget”, and “the outcome can change a lot from the initial start point”.

Mr Felsman said market inflation readings and economic activity updates were more important for Australian investors.

This included an update on overseas arrivals and departures on Tuesday as well as a March quarter update on the wage price index on Wednesday.

Originally published as Australian sharemarket set to fall ahead of budget