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

Australian shares plummeted to a three-month low on Thursday, as soaring oil prices reignited fears of persistent inflation and a prolonged period of tight monetary policy. The S&P/ASX 200 index slid 1.2% to 8,658.10, its lowest point since June 12, after crude oil prices jumped nearly 4% following renewed tensions between Iran and the United States.

Australia has been battling rising inflation, driven by the surge in fuel costs sparked by the Middle East conflict, which boosted global oil prices. The Reserve Bank of Australia has raised its cash rate by 75 basis points this year and cautioned that further hikes could be necessary to curb inflation. Investors will be keenly observing the upcoming release of monthly employment data, the final major economic indicator before the central bank's policy meeting next week.

The subdued market mood was compounded by a surge in yields for both short-term and long-term government bonds, which can negatively impact equities by increasing the cost of corporate financing and attracting investors back into bonds. Resources stocks lagged the market, falling 2% as copper prices retreated from near-record highs amid a stronger US dollar.

BHP and Rio Tinto experienced declines of 2.3% and 1.6%, respectively. Meanwhile, BHP's operations at its Escondida copper mine in Chile were halted following a fatal accident. Financial institutions also suffered, slipping 1.5% to a two-week low. Major banks within the "Big Four" group experienced losses ranging from 1.8% to 2.1%.

Despite the overall downward trend, energy stocks outperformed, rising 1.1%, with Woodside Energy and Santos gaining 1.2% and 1.4%, respectively. In New Zealand, the benchmark S&P/NZX 50 index continued its downward trajectory for a second consecutive day, closing 0.3% lower at 13,779.54.