Shares finish week strongly but high close no pointer of things to come

Australian shares finished the week with a strong rise after US Federal Reserve downplayed the chance of faster rate hikes.

The S&P/ASX 200 index closed up 1.9pc a three-day high of 7075.1 points. It’s the third best day this year and the best close in the past four days. Picture: NCA NewsWire / Damian Shaw

Australian shares finished the week with a strong rise after US Federal Reserve chairman Jerome Powell downplayed the chance of faster rate hikes.

The S&P/ASX 200 index closed up 1.9 per cent at a three-day high of 7075.1 points. It’s the third best day this year and the best close in the past four days.

For the week, the index lost 1.8 per cent to be down four weeks in a row, having lost 6.1 per cent in that period. It fell as much as 9 per cent in the past three weeks.

Friday’s strong rise is consistent with strong gains offshore as S&P 500 futures rose 0.8, Nasdaq 100 futures by 1.1, Japan’s Nikkei 225 jumped 2.6, the Hang Seng gained 2.3 per cent, China’s CSI 300 rose 0.6 and South Korea’s KOSPI increased 2 per cent.

Some in the market are already banking on a turnaround in Asian markets. Fredy Hoh, at Ellerston Capital’s Asian Investments fund said: “Given the current bearish sentiment, any tangible policy action in the coming weeks could be a significant inflection point for a sustained rally in China/HK markets.”

Singapore iron ore futures rose 1 per cent and Brent crude oil gained 1.2 per cent.

But Friday’s strong rise probably sets the ASX 200 up for a fall on Monday unless Wall Street takes off, in which case the S&P/ASX 200 may target 7200 before attention turns to Reserve Bank meeting minutes, the first-quarter wage price index and employment data next week.

The IT sector led the gains on Friday, up 6.95 per cent, followed by Health – up 3.02 per cent – and Real Estate, up 2.97 per cent.

But over the week, it was only Health that was in positive territory, up 2.59 per cent over five days. The worst performer was IT, which fell 6.66 per cent, followed by Materials, down 3.89 per cent.

Standout rises on Friday included Block, Life360 and Poly­Novo – all up over 14 per cent – while the biggest falls were among resources companies including IGO, Gold Road Resources and Evolution Mining.

But shares face continued volatility as central banks tighten to combat high inflation, the war in Ukraine continues and Chinese Covid-19 lockdowns impact, said AMP Capital’s chief economist Shane Oliver.

He sees shares providing reasonable returns on a 12-month horizon as global recovery continues, profit growth slows but remains solid, and interest rates rise but not to onerous levels, at least not for the next year.

In housing, Morgan Stanley said its forward-looking model, MSHAUS, “remained very weak” in the March quarter, at 1.03 points, driven by softening sentiment and credit supply.

With the RBA’s rate hike cycle accelerating, they see mortgage servicing costs rising sharply, driving further downside, with prices likely falling 5 per cent this year and 10 per cent next year. They see the cash rate hitting 1.75 per cent, causing a “material headwind” to the market.