The Australian share market closed lower on Friday, with overseas investors less certain that the US Federal Reserve will cut rates amid persistently high inflation, and still fearing volatility in the Middle East.

The S&P/ASX 200 closed 23.4 points, or 0.3 per cent, lower on Friday at 7791.3. The share market ended the week only slightly higher.

“Shares had another rough ride over the last week as higher than expected US inflation saw expectations for Fed rate cuts further pushed out and reduced,” according to AMP’s chief economist Shane Oliver.

“That said, US shares only fell slightly with expectations about stronger profits providing some offset.”

He noted that despite the messy global lead and the local money market pushing RBA rate cuts out to later this year or early next year the Australian share market managed a modest gain of around 0.2 per cent for the week.

He noted gains in materials off the back of a rise in the iron ore price and utilities offsetting falls in property, consumer and IT stocks.

Bond yields rose in response to the higher-than-expected US inflation data.

“While oil prices dipped slightly despite ongoing fears about an escalation in the war around Israel to directly include Iran, the copper price rose to new cyclical high and iron ore prices also rose,” Mr Oliver said.

Despite ongoing volatility, Mr Oliver thinks there will be some further gains in shares this year as inflation slows, central banks eventually cut interest rates and “recession is avoided or proves mild”.

“But shares remain vulnerable to more volatility and a possible correction as valuations are stretched,” he said.

This was particularly the case with higher bond yields, investor sentiment “too bullish” and uncertainty high regarding the timing of rate cuts.

“Recession risks remain high and there are multiple geopolitical threats, particularly around the war in the Middle East and the US election,” Mr Oliver noted.