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

Australian shares hit a more than three-month low on Thursday, with most sectors trading in negative territory, as a sharp rise in oil prices revived concerns that ​inflation could stay persistent and keep monetary policy tight.

The S&P/ASX 200 index ‌was down 1.2% at 8,658.10, as of 0010 GMT. The index fell as much as 1.4% earlier in the session, hitting its lowest since June 12.

Crude oil prices surged nearly 4% overnight ​after tensions between Iran and the United States flared anew, undermining hopes for ​an imminent easing of Middle East tensions.

Australia has been grappling with rising ⁠inflation, with fuel costs surging after the Middle East conflict drove up global ​oil prices.

The Reserve Bank has increased its cash rate by 75 basis points in total ​so far this year and has warned that rates may need to rise again to rein in inflation.

Market participants will closely watch monthly employment data due later in the day, the last major economic ​report before the central bank's policy meeting next week.

Adding to the subdued sentiment, yields ​on short-term and long-term government bonds surged.

Higher rates can weigh on equities both by raising the cost ‌of ⁠financing corporate investment and by luring buyers back into the bond market.

Resources (.AXMM), opens new tab was among the major laggards with a 2% drop, as copper prices fell from near-record highs on a stronger U.S. dollar. BHP (BHP.AX), opens new tab and Rio Tinto (RIO.AX), opens new tab fell 2.3% and 1.6%, respectively.

Separately, operations ​at BHP's Escondida copper ​mine in Chile were suspended ⁠after a worker was killed in an accident.

Financials (.AXFJ), opens new tab slipped 1.5% to hit a two-week low. All "Big Four" banks declined between 1.8% ​and 2.1%.

Rate-sensitive real estate (.AXRE), opens new tab and consumer discretionary (.AXDJ), opens new tab stocks lost 1.4% and ​1%, respectively.

Energy (.AXEJ), opens new tab ⁠was among the few sectors trading in positive territory, advancing 1.1%. Woodside Energy (WDS.AX), opens new tab and Santos (STO.AX), opens new tab climbed 1.2% and 1.4%, respectively.

In New Zealand, the benchmark S&P/NZX 50 index (.NZ50), opens new tab fell for a ⁠second ​straight session and was last down 0.3% at 13,779.54.