Australian shares hit over 3-month low as oil rally revives inflation worries

Australian shares plummeted to their lowest level in over three months on Thursday, with most sectors sliding into negative territory. The S&P/ASX 200 index closed down 1.2% at 8,658.10, having tumbled as high as 1.4% earlier in the session. This marked the index's lowest level since June 12. Crude oil prices surged nearly 4% overnight due to renewed tensions between Iran and the United States, dampening expectations of an early de-escalation of the Middle East conflict.

Australia has been struggling with inflation, with fuel costs escalating after the Middle East unrest drove up global oil prices. The Reserve Bank has raised its cash rate by a total of 75 basis points this year and has signaled that further hikes may be necessary to curb inflation. Market participants will be keenly observing the upcoming monthly employment data, the last significant economic report before the central bank's policy meeting next week.

Bond yields, both short-term and long-term, also rose sharply, which could adversely impact equities by increasing financing costs for corporate investments and drawing funds back into the bond market. The resources sector was among the biggest underperformers, with a 2% decline as copper prices retreated from near-record highs due to a stronger U.S. dollar.

BHP and Rio Tinto each dropped 2.3% and 1.6%, respectively. Financials also suffered, slipping 1.5% to a two-week low. Major banks and real estate and consumer discretionary stocks were also down 1.8%-2.1% and 1%, respectively. Energy stocks were the only ones trading in positive territory, up 1.1%. Woodside Energy and Santos rose by 1.2% and 1.4%, respectively.

In New Zealand, the S&P/NZX 50 index slipped for the second consecutive day, closing 0.3% lower at 13,779.54.