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The share market slumped to an eight-week low as signs of a sharp slowdown in major trading partner China offset positive leads from European stocks.

At the halfway mark, the S&P/ASX 200 was down 127 points or 1.81 per cent after a brief burst of New Year optimism gave way to heavy selling on the first session of 2023.

The Australian benchmark rose as much as 32 points in early action. A swift reversal set the index on course for its fourth loss in five sessions.

Gains in gold miners and gambling-related stocks were outweighed by declines across the wider market. Banks, healthcare providers and tech stocks were the biggest drags.

What’s driving the market

A new year brought no break in the downtrend that developed and deepened on the ASX across December. Stocks have been in retreat since topping out at a six-month high on December 1.

While a new year naturally conjures visions of fresh beginnings, the reality is changing calendars did nothing to alleviate the headwinds that battered equity markets last year. War continues in Ukraine, inflation remains at elevated levels, interest rates here and overseas are almost certain to rise, and China’s pivot away from zero-Covid has triggered a massive wave of infections.

The deterioration in China was underscored by dire economic data across the holiday break. A measure of Chinese factory output slumped to a three-year low of 47 last month from a reading of 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.

Factory activity has been dented by a wave of Covid infections and by weakening demand as interest rate hikes slow the European and US economies. Demand for Australian raw materials could be next to follow.  

“Most factories I know are way below where they could be this time of year for orders next year. A lot of factories I’ve talked to are at 50%, some are below 20%,” Cameron Johnson, partner at Tidalwave Solutions, a supply chain consulting firm, told Reuters.

“So even though China is opening up, manufacturing is still going to slow down because the rest of the world’s economy is slowing down. Factories will have workers, but they will have no orders.”

European stocks kicked off the new year with solid gains overnight amid hopes the worst of the downturn in European manufacturing had passed. The pan-European Stoxx 600 index rallied 0.96 per cent.

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.

Going up

Gold mining delivered some of the morning’s meagre handful of advances after the yellow metal ended the year near a six-month high. De Grey put on 2.33 per cent, Northern Star 0.41 per cent and Evolution Mining 0.34 per cent.

The session’s other top movers were mostly defensive: Tabcorp +1.86 per cent, Breville Group +1.31 per cent and The Lottery Corporation +1.12 per cent.

Pokie-maker Aristocrat Leisure was the only heavyweight of the ASX 20 to resist the selling, inching up 0.88 per cent. Gold miner Newcrest was flat.

Going down

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 8.25 per cent. Whitehaven Coal shed 7.32 per cent, Liontown Resources 6.82 per cent and Coronado 6.53 per cent.

Risk-sensitive growth stocks also came under pressure. Telix Pharmaceuticals shed 3.99 per cent, Novonix 3.74 per cent and WiseTech 3.63 per cent.

The major banks were the biggest weight at the pointy end of the market. NAB sagged 2.86 per cent, Westpac 2.7 per cent, ANZ 2.66 per cent and Macquarie Group 2.25 per cent.

Other significant drags included CSL -2.14 per cent and Rio Tinto -2.1 per cent. Telstra lost 1 per cent and Wesfarmers 1.05 per cent.

Fund manager Perpetual eased 1.16 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 0.2 per cent.  

Other markets

Asian markets got off to a downbeat start. The Asia Dow shed 0.52 per cent, China’s Shanghai Composite 0.06 per cent and Hong Kong’s Hang Seng 1.07 per cent.

US futures opened higher, but quickly surrendered gains. S&P 500 futures were recently off 15 points or 0.4 per cent.

Oil unwound some of last night’s 2.9 per cent rally. Brent crude dropped 92 US cents or 1.1 per cent to US$84.99 a barrel.

Gold added to last week’s six-month high, rising US$8 or 0.44 per cent to US$1,834.20 an ounce.

The dollar reversed 0.42 per cent to 67.79 US cents.

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