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A new year got off to a challenging start with Australian stocks at eight-week lows as a month-long retreat continued in the wake of soft economic signals from major trading partner China.  

The S&P/ASX 200 slumped 92.5 points or 1.31 per cent to 6946 on the first session of 2023. The index’s fourth decline in five sessions pulled it to its weakest close since November 8. At the day’s low, the index was down as much as 1.9 per cent.

Banks, healthcare providers and coal miners were among the day’s biggest drags. Gold miners and gambling-related stocks provided most of the winners.

What moved the market

Downbeat expectations for the year ahead ensured the share market continued a downtrend that has been developing since the ASX 200 hit a six-month high on December 1.

“ASX 200 falling below 7,000 on the first day is not the kind of beginning that can pave the road for renewed interest in equities, usually considered riskier amid macroeconomic headwinds,” Kunal Sawhney, chief executive of research group Kalkine, said.

“Miners are down, and so are big banks, which implies that investors are sceptical even about dominant sectors, let alone emerging ones. Coal or any other commodity that goes into industrial production is facing the brunt of expectations that a recession is just around the corner.”

Optimism over China reopening has been replaced by fear of what Beijing’s sudden pivot away from zero-Covid will do to inflation and supply chains. The scale of the challenge facing Xi Jinping’s government was underlined during the holiday break by data showing how much momentum the economy lost last month as Covid outbreaks closed production lines and kept workers at home.

A measure of factory output slumped to a three-year low of 47 from 48 in November. Readings below 50 indicate diminishing activity.

Services-sector activity contracted to 41.6 from 46.7 in November. The composite purchasing managers’ index, which combines both sectors, dropped to 42.6 from 47.1.

A separate manufacturing gauge conducted by Caixin published this morning fell to 49 last month from 49.4 in November. Caixin’s measure has been in contraction for the last five months. Weaker activity means lower demand for Australian raw materials.

“Overall, the pandemic continued to take a toll on the economy in December,” Wang Zhe, senior economist at Caixin Insight Group, said.

The Australian market opened as much as 32 points higher following solid gains in European stocks overnight. The pan-European Stoxx 600 index rallied 0.96 per cent amid hopes the worst of a downturn in European manufacturing had passed.

Wall Street was closed for NY holidays. US stocks ended their worst year since 2008 with a round of modest losses on Friday.

The S&P 500 eased ten points or 0.25 per cent. The Dow Jones Industrial Average shed 74 points or 0.22 per cent. The Nasdaq Composite gave up 12 points or 0.11 per cent.

Winners’ circle

Gold mining delivered some of the day’s best advances after the yellow metal ended 2022 near a six-month high. De Grey put on 5.06 per cent, Gold Road Resources 2.37 per cent and Evolution Mining 2.01 per cent. Northern Star tacked on 1.83 per cent. Industry heavyweight Newcrest added 0.97 per cent.

The session’s other top movers were mostly defensive: Tabcorp +2.79 per cent, The Star Entertainment Group +2.54 per cent and Breville Group +1.74 per cent.

Aside from Newcrest, pokie-maker Aristocrat Leisure was the only heavyweight of the ASX 20 to resist the selling, inching up 0.33 per cent.

Fund manager Perpetual firmed 0.37 per cent after confirming shareholders will receive a fully-franked special dividend of 35 cents per share. The dividend is part of a scheme implementation deed with Pendal. Shares in Pendal rose 0.8 per cent.  

Doghouse

Coal and lithium miners spearheaded losses amid questions over demand as the global economy slows in 2023. New Hope, one of last year’s best performers, plunged 8.49 per cent. Whitehaven Coal shed 6.26 per cent, Liontown Resources 7.2 per cent and Lake Resources 5.63 per cent.

Risk-sensitive growth stocks also came under pressure. Telix Pharmaceuticals shed 3.58 per cent, Novonix 4.08 per cent and Megaport 3.49 per cent.

The major banks were the biggest weight at the pointy end of the market. ANZ sagged 2.75 per cent, Westpac 2.66 per cent, NAB 2.13 per cent and CBA 1.51 per cent.

Other significant drags included CSL -2.09 per cent and Coles -1.56 per cent. Telstra lost 1 per cent and Wesfarmers 0.98 per cent.

Other markets

Asian markets overcame early losses. The Asia Dow swung to a gain of 0.87 per cent. China’s Shanghai Composite added 0.56 per cent. Hong Kong’s Hang Seng put on 1.31 per cent.

US futures inched higher in choppy trade. S&P 500 futures were recently ahead four points or 0.1 per cent.

Oil unwound some of last night’s 2.9 per cent rally. Brent crude dropped 35 US cents or 0.4 per cent to US$85.56 a barrel.

Gold added to last week’s six-month high, rising US$21.90 or 1.2 per cent to US$1,847.70 an ounce.

The dollar bounced 0.3 per cent to 68.28 US cents.

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