Australia's share market has thrown away an early lead after an upside inflation surprise had markets betting on a Melbourne Cup interest rate hike.
The S&P/ASX200 fell 2.8 points on Wednesday, down 0.03 per cent to 8847.3, as the broader All Ordinaries rose 2.6 points, or 0.03 per cent, to 8971.4.
A morning rally for the top-200 turned to dust after higher-than-expected September inflation figures prompted interest rate markets to brace for an expected Reserve Bank rate increase on Tuesday.
Rate-sensitive sectors such as consumer cyclicals, industrials and utilities sold off, while rebounding miners and tech stocks helped limit the damage as strong chipmaker earnings added fuel to the recently reinvigorated AI and copper narrative.
"Whilst inflation came in only modestly above expectations, the interest rate markets have moved to the belief now that on the third of November we're going to get another rate hike," Pepperstone head of research Chris Weston told AAP.
"It looks pretty clear that they're going to (hike), and I think we've got to prepare ourselves for that to happen."
BHP and Rio Tinto tracked the broader market backdown to trade slightly better than flat by the close, while gold miners and critical minerals producers clung onto most of their recent rebounds.
Energy stocks bled lower despite oil prices firming during the session, with Brent crude trading at $US115.60 a barrel after the latest attack on a Saudi Arabian refinery.
Westpac and CommBank were the best of the big four, up more than 0.6 per cent each, while interest rate gloom hung heavily over insurers.
The consumer cyclical segment was one of the worst performers, down 1.5 per cent, as the traditionally defensive consumer staples sector dipped 0.7 per cent despite a positive trading update from Woolies.
In company news, Star Entertainment remains in a trading halt after being hit with a $260 million fine for anti-money laundering breaches.
NextDC rebounded by almost a tenth after it released a balance sheet and compliance update to assure investors its debt position is secure, after project delays hammered its share price last week.
The Australian dollar is buying 70.32 US cents, up from 70.22 US cents on Tuesday at 5pm, as bets narrowed on an incoming cash rate increase.
Among the RBA's concerns were a risk inflation could become embedded in the economy through price growth expectations, Betashares chief economist David Bassanese said.
"If business(es) expect higher inflation to persist, they’ll be more likely to accept cost increases from suppliers and workers and feel more able to pass that on through price increases," he said.
"Getting inflation back down again might then require an even harsher economic downturn, if not outright recession."
ON THE ASX:
* The S&P/ASX200 lost 2.8 points, or 0.03 per cent, to 8847.3
* The broader All Ordinaries advanced 2.6 points, or 0.03 per cent, to 8971.4
One Australian dollar trades for:
* 70.32 US cents, from 70.22 US cents on Tuesday at 5pm AEDT
* 110.99 Japanese yen, from 110.75 Japanese yen
* 63.24 euro cents, from 62.89 euro cents
* 62.91 British pence, from 52.67 pence
* 125.37 NZ cents, from 123.34 NZ cents
