Adrian BlackUpdated September 2, 2026 — 10:43am,first published September 2, 2026 — 5:18amAustralia’s sharemarket has closed sharply lower as escalation in the Middle East and worries about inflation, interest rates and bond markets weigh on investor confidence.The S&P/ASX200 was 88.3 points lower at the close, down 0.97 per cent, to 8978.4, while the broader All Ordinaries lost 100.6 points, or 1.09 per cent, to 9160.3.The S&P/ASX 200 fell 0.97 per cent on Wednesday. Getty ImagesBrent crude prices topped $US97 a barrel for the first time since July as the US and Iran exchanged attacks, while bond yields hit multi-year highs with inflation concerns rattling investor nerves.As fighting continued and hopes for a timely resolution to the war and resulting energy supply disruption faded, markets were finding it harder to know where oil prices and the inflationary impact would peak, IG market analyst Tony Sycamore said.“There doesn’t seem to be an off-ramp,” Sycamore said.“We could be looking at this going on for another two days, another two weeks, another two months.”Miners were hit hardest, with the basic materials sector sinking 3.3 per cent as higher fuel price expectations and global growth concerns dragged on companies and commodity prices.Gold fell to $US4316 ($A6045) an ounce as the prospect of higher interest rates globally weighed on non-yielding assets.Banking stocks staged a modest rebound after Australian June-quarter economic growth came in at 0.4 per cent, beating expectations but ultimately stagnant due to ongoing productivity shortfalls.The resilient economic figure left the Reserve Bank facing an “ugly policy dilemma” ahead of its cash rate decision on September 29, Global X ETFs strategist Marc Jocum said.“The lagged effects of previous rate hikes are still working through the economy, but inflation remains stubbornly high,” Jocum said.“That could make for a tough second half of the year, with the uncomfortable spectre of stagflation looming large.”Sustainable economic expansion required productivity-led growth, strong exports and productive investment, he said.NAB economists and TD Securities expect the RBA to hike the official cash rate to 4.6 per cent this month, while most analysts still expect the central bank to hold off until November.Traditionally defensive consumer staples stocks outperformed the broader market, the sector up 0.8 per cent as Graincorp and Select Harvests rallied.In company news, Telstra shares jumped almost 2 per cent despite a damning independent report into its July outage finding technical and staffing failures.Corporate Travel Management has swung to a $17.7 million bottom-line profit in 2025/26 from a $348.5 million loss a year earlier, signalling a partial earnings recovery as it continued to remediate victims of its European division’s post-pandemic overcharging scandal.The Australian dollar was buying US71.39¢, down from US71.64¢ on Tuesday at 5pm.Overnight, the S&P 500 index fell 0.7 per cent. The Dow Jones Industrial Average dropped 0.8 per cent, and the Nasdaq composite slid 1 per cent. The major indexes have lost ground three days in a row.The weak start to September follows a shaky but mostly positive month for Wall Street. Every major index notched monthly gains in August. The same worries continue to hang over Wall Street, though, including anxiety over rising prices, government debt, and the impact of global conflicts on the US and the global economy.Technology stocks were among the heaviest weights on the market. Nvidia fell 1.5 per cent, Amazon dropped 1.9 per cent and Advanced Micro Devices gave up 2.4 per cent. Their big market values tend to give them more influence over the broader market’s direction and their growth amid the artificial-intelligence boom has been heavily reliant on borrowing, which becomes more expensive as interest rates rise.Much of the continued pressure being felt by Wall Street is coming from an ongoing sell-off in US government bonds. The yield on the 10-year Treasury, which tends to impact mortgage rates, rose to 4.79 per cent from 4.75 per cent late Monday. It was as low as 4.20 per cent at the beginning of 2026.From our partners