North American Morning Briefing: Covid Protests in China Spread, Hit Market Sentiment

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Today's Headlines/Must Reads

- Chinese Stocks Drop as Covid Protests Intensify, Cases Surge

- Globalized Supply Chain Brings More-Turbulent Food Prices

- Oil Prices Face Fresh Volatility With New Russia Sanctions, OPEC Decision

- Disney's Iger Faces Troubled Animation Market as 'Strange World' Bombs

Follow WSJ markets coverage here .

Stock-index futures were lower on Monday, while Treasurys rallied, as investors evaluated mounting protests in China against the government's zero-tolerance approach to Covid-19, as well as a surge in new infections in the country.

Shares in mainland China and Hong Kong opened sharply lower but had pared losses by the close, as thousands of protesters in major Chinese cities, including Beijing and Shanghai, called for President Xi Jinping to resign.

The unprecedented protests were spurred by frustration with China's strict lockdowns as part of its "zero-Covid" policy.

"Unsurprisingly, there is more significant uncertainty in China's reopening trajectory, which is getting priced into markets on reports of protests over the weekend," SPI Asset Management said.

"Still, this morning's price action could reverse quickly if it becomes clear that reports of protests will not lead to tighter Covid restrictions," SPI said.

Natixis said the demonstrations have complicated the direction of China's zero-Covid policies.

"The Chinese government is not the type of authority that wants people to challenge it. They may do something to loosen the rules a little bit, but there is also the risk that they will decide to actually strengthen the measures even further," Natixis said.

However, Grow Investment Group said some investors see the protests as a good excuse to take profits after gains of more than 17% in the Hang Seng so far in November.

Stocks to Watch

Shares in Apple were down 1.3% premarket on reports it could suffer a production shortfall of 6 million iPhone pros.

Forex:

The data calendar is set to pick up this week and could boost the dollar by adding to the view the Fed is set to continue raising interest rates, ING said.

"The more important data releases come on Thursday and Friday, where any uptick in the core PCE price data or strong job numbers could support potentially hawkish rhetoric from Powell and send U.S. yields and the dollar higher again," ING said.

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Sterling's gains against the dollar won't last given the prospect of a global recession and the U.K.'s substantial current account deficit, ING said.

The current inversion in global yield curves--where shorter-term government bond yields are higher than longer-term yields--are a "likely harbinger of recession," ING added. "And with its large current account deficit, sterling should be expected to remain vulnerable."

Fresh selling interest in GBP/USD could emerge near the 200-day moving average at 1.2177 or at best the 50% retracement of the 2021-22 drop at 1.2300, ING said.

Crypto

The implosion of Sam Bankman-Fried's FTX continues to reverberate through the cryptocurrency industry. Here's the market action:

-Bitcoin fell about 2.2% compared with its late Sunday level, to stand at about $16,204

-Ethereum traded at about $1,172, down about 3.3% from 24 hours earlier, according to CoinDesk

-Tether traded at close to parity with the dollar, with the biggest stablecoin trading at around $0.999

Bonds:

The inversion of the Treasury yield curve has hit a "new cycle extreme," Saxo said, with the spread between 2-year and 10-year yields hitting minus 80 basis points in a growing sign of a likely oncoming recession..

"The risk-off mood is driving strong safe-haven flows into Treasurys, as the 10-year benchmark traded to new local lows below 3.65%, with little room left to the pivotal 3.50% level," Saxo said.

Energy:

Crude prices were almost 3% lower in Europe after Covid-19 cases surged in China, and following uncertainty about how the Chinese government will respond to an eruption of protests against its zero-tolerance approach.

"There are worries that the demand could deteriorate even further if the government steps in harder and orders an even stronger lockdown," Saxo Bank said. "That's really the nervousness in the market."

Talks are due to continue this week about a price cap on Russian oil by the European Union, while the OPEC+ cartel meets next weekend. The EU's ban on Russian crude imports begins on Dec. 5.

Read Oil Prices Face Fresh Volatility With New Russia Sanctions, OPEC Decision

Metals:

Base metals fell close to 1% in early London trading, while gold was little changed, weighed by a stronger dollar and China uncertainty.

"Moves continue to be dominated by the FX and macro," Marex said.

TODAY'S TOP HEADLINES

Apple will produce 6 million fewer iPhone pros amid unrest in key China manufacturing hub: report

Unrest at one of China's biggest manufacturing centers may cause a production shortfall this year of possibly 6 million Apple iPhone Pros, according to a source cited by Bloomberg.

The Foxconn Technology TW:2354 facility in Zhengzhou, which makes the majority of Apple's premium and most popular phones, has been struggling with staff agitation for weeks as Chinese workers rebel against the Communist regime's draconian COVID-19 lockdown policy.

Disney's Robert Iger Faces Troubled Animation Market as 'Strange World' Bombs

LOS ANGELES-Add Walt Disney Co.'s animation woes to Robert Iger's to-do list.

The company's latest release, "Strange World," this weekend became the second consecutive Disney animated offering to bomb at the box office, collecting a measly $18.6 million since opening Wednesday.

World's Top-Selling Drug Going Off Patent Means Big Bucks for Middlemen

Starting next year the highest-grossing drug of all time, AbbVie's Humira, will finally face competition from copycat biologics in the U.S.

Yet the makers of the complex generics known as biosimilars won't necessarily be the biggest winners. The top beneficiaries could instead be the middlemen such as Cigna and CVS Health, which will negotiate and dispense the drugs to patients.

Thousands of Bottles and Cups for Toddlers Recalled Over Lead Poisoning Risk

A company that makes natural products for babies has recalled about 10,500 bottles and cups after learning children could be exposed to material containing lead if the base breaks off, the U.S. Consumer Product Safety Commission said.

Green Sprouts Inc. voluntarily recalled the products after realizing that the base of some of its stainless-steel bottles and cups can break and expose soldering that contains lead, the commission said. Lead is toxic if ingested by young children and can have adverse health effects.

Rain, Wind Slow Otherwise Smooth Thanksgiving Travel

Airlines and airports reported generally smooth operations during Thanksgiving week, though poor weather caused some problems on what is expected to be the holiday's busiest travel day.

Overall, calm weather throughout most of the country helped keep flight disruptions to a minimum. From Monday through Saturday, airlines scrapped 262 domestic flights-0.2% of what was scheduled, according to FlightAware, a flight tracking site.

'Knives Out' Sequel Delivers in Theaters for Streaming Giant Netflix

Streaming pioneer Netflix Inc. gave movie theaters something to be thankful for this year.

The streaming platform's "Glass Onion: A Knives Out Mystery" made $9.2 million between Friday and Sunday, or an average of $13,200 per screen, a higher per-screen performance than any other movie in the U.S. and Canada this weekend, according to a person familiar with the matter.

Exxon Mobil Has a Potash Problem in the Permian Basin

A vital crop nutrient that lies underground near oil and natural-gas reserves is holding back Exxon Mobil Corp.'s development of a key asset in the booming Permian Basin.

Unlike many of its rivals in the largest U.S. oil patch, the Texas oil company shares a sizable chunk of its land with mining companies that extract potash and other minerals used to produce fertilizer from underground mines, blocking drillers' direct access to bounties of oil-soaked rocks.

Restaurants, Grocery Stores Battle Over Consumers' Stretched Dollars

Restaurants and supermarkets are ramping up competition for Americans' mealtimes, as consumers gird for a souring economy while food bills continue to rise.

Many restaurants are promoting deals they said are aimed at giving consumers more value for their dollars, while raising menu prices. Supermarkets are stocking more low-price staples and offering specials on prepared food that companies said are targeted toward shoppers who are rethinking how many times they eat out each week.

American Casino Giants Win 10-Year Macau License Renewals

HONG KONG-Six casino operators in Macau won provisional licenses to continue operating in the Chinese gambling hub for the next 10 years, the local government said, while rejecting a bid from an outsider to enter the market.

The winning companies include affiliates of three American casino giants, Las Vegas Sands Corp., MGM Resorts International and Wynn Resorts Ltd. The licenses of three local rivals were also renewed. They are held by Galaxy Entertainment Group, SJM Holdings Ltd. and Melco Resorts & Entertainment Ltd.

Elon Musk Champions Twitter Fact-Checking Feature That Corrects Him

As Elon Musk works quickly to reshape Twitter Inc. and realize his vision for a platform more focused on free speech, one feature is gaining prominence: Community Notes.

Previously called Birdwatch, the feature is designed to combat false and misleading information by relying on crowdsourced contributions to add context to tweets. Mr. Musk has publicly supported the feature, which has fact-checked his own tweeting. It predates his takeover of Twitter late last month.

U.S. Natural-Gas Pioneer Struggles in His Second Act

Charif Souki has played a starring role in transforming America into an energy powerhouse, but his second attempt at exporting natural gas is foundering.

Mr. Souki's new firm, Tellurian Inc., is struggling to line up financing to build a large export plant for liquefied natural gas on the Gulf of Mexico despite soaring demand for cargoes of the fuel this year.

Chinese Stocks Drop as Covid Protests Intensify, Cases Surge

Shares in mainland China and Hong Kong slid on Monday morning, after protests against the country's zero-tolerance approach to Covid-19 gathered steam.

Hong Kong's benchmark Hang Seng Index, which is dominated by Chinese stocks, was down more than 4% after the market opened. It recovered some ground during the day but was still around 1.6% lower by midafternoon. The Chinese domestic CSI 300 index closed down 1.1%.

Globalized Supply Chain Brings More-Turbulent Food Prices

For decades, globalization has increased the variety and reduced the cost of food. Now the pandemic, war in Ukraine and other global disruptions have shown how that complex supply chain can also result in more turbulent prices.

Food-price inflation hit multidecade highs this year in the U.S. and elsewhere, outpacing overall consumer prices. While food inflation has cooled in recent weeks, food prices globally are still 25% higher than before Covid-19 struck in early 2020, according to the United Nations Food Price Index.

Oil Prices Face Fresh Volatility With New Russia Sanctions, OPEC Decision

OPEC and its allies are due to make a big call on oil production next week, a day before expanded sanctions are set to strike Russia's energy industry.

The potential impact of these moves is helping shroud the oil market in uncertainty at a time when coronavirus outbreaks are hammering demand in China.

More Venezuelan Oil Unlikely to Reach Markets Soon Despite New Chevron License

The Biden administration made a significant shift in its Venezuela policy when it allowed Chevron Corp. to pump oil in the South American country again, but the decision will yield little increase to the world's oil production in the short-term.

The U.S. company will have to contend with myriad technical issues at Venezuela's aging oil fields and a complicated network of remaining U.S. sanctions that must be altered to ensure more of the country's oil reaches the global market.

Stocks Are on the Rise, but Earnings Could Drag Them Down Again

Markets have had a good run in recent weeks, but some investors expect unimpressive earnings to send stocks lower again.

U.S. stocks have mounted a turnaround lately amid expectations the Federal Reserve could slow the pace of its rate increases as soon as December. That has been a welcome change, since stocks have been under pressure throughout the year thanks to roaring inflation and the Fed's aggressive rate-raising campaign to try to curb the rising prices. The S&P 500 is down 16% this year, but up 13% from Oct. 12, its lowest close of 2022.

Bank of Japan Sees Unrealized Bond Loss for First Time in Over 16 Years

The Bank of Japan reported an unrealized loss on its Japanese government bondholdings for the first time in more than 16 years, reflecting the sharp rise in yields.

The BOJ said Monday that it had an unrealized loss of 874.9 billion yen ($6.29 billion) on its JGB holdings as of the end of September, compared with a profit of Y4.373 trillion at the end of March. It was the first time since March 2006 that the BOJ saw a loss in JGB holdings.

FTX's Collapse Upends Sam Bankman-Fried's Washington Play

WASHINGTON-Sam Bankman-Fried's multimillion-dollar Washington charm offensive revolved around a small financial regulator and a group of senators with whom the purported crypto billionaire found common cause in a bid for light-touch regulation of digital assets.

For FTX, the crypto exchange Mr. Bankman-Fried founded, the goal was to steer oversight of crypto into the hands of what was perceived to be a friendlier regulator than the Securities and Exchange Commission, which has been promising a more stringent approach.

China's Economy Faces Challenges Despite Latest Moves to Stimulate Growth

HONG KONG-China's recent steps to adjust Covid-19 controls and revive activity in the beaten-down property market stirred hopes that Chinese leader Xi Jinping is putting fresh emphasis on measures to support the economy, potentially leading to a strong rebound in growth next year.

But economists warn the moves so far haven't amounted to a broad shift in Mr. Xi's policies, and the messaging out of the recent Communist Party Congress only reinforced that the Chinese leader planned to stick to his goals of achieving economic self-sufficiency and "common prosperity"-even at the cost of lower growth rates.

Chinese Protests Spread Over Government's Covid Restrictions

BEIJING-Protests are erupting in major cities in China over President Xi Jinping's zero-tolerance approach to Covid-19, an unusual show of defiance in the country as the economic and social costs from snap lockdowns and other strict restrictions escalate.

Demonstrations occurred throughout the weekend in both Beijing and Shanghai. According to eyewitness accounts, there were also protests in the eastern city of Nanjing and in Wuhan, the original epicenter of the pandemic. Video footage and photos circulating on social media, which The Wall Street Journal wasn't able to independently verify, suggest protests broke out in several other cities, including Chengdu, capital of Sichuan province.

Canada Calls China Disruptive Global Actor

Canada on Sunday called China a "disruptive" global force that must be contained, the latest salvo against Beijing as Ottawa embraces a less friendly approach toward the country after a high-stakes U.S.-China battle over telecommunications.

The comment came as Canada unveiled a revised policy framework for dealing with the Asia-Pacific region, with a particular focus on China. Canada says the new policy is in response to China's assertive pursuit of economic and security interests, as well as foreign-interference activities, in countries such as Canada, and to what it called China's "coercive treatment" of other nations.

Most Power Is Restored in Kyiv as Russian Strikes Hit Southern Ukraine

MYKOLAIV, Ukraine-Ukrainian officials said Sunday that they had managed to restore most of the electricity to the capital city of Kyiv, even as Russian strikes hit cities across southern Ukraine and intense fighting continued in the country's eastern Donetsk region.

Even though parts of Ukraine's electricity grid have been hobbled by Russian strikes over the past few weeks, officials in the capital said that power, water and heat had been almost completely restored. Utility workers have been scrambling to restore power in recent days as temperatures drop and snow starts falling on the city of three million.

U.S. Effort to Arm Taiwan Faces New Challenge With Ukraine Conflict

WASHINGTON-U.S. government and congressional officials fear the conflict in Ukraine is exacerbating a nearly $19 billion backlog of weapons bound for Taiwan, further delaying efforts to arm the island as tensions with China escalate.

The U.S. has pumped billions of dollars of weapons into Ukraine since the Russian invasion in February, taxing the capacity of the government and defense industry to keep up with a sudden demand to arm Kyiv in a conflict that isn't expected to end soon. The flow of weapons to Ukraine is now running up against the longer-term demands of a U.S. strategy to arm Taiwan to help it defend itself against a possible invasion by China, according to congressional and government officials familiar with the matter.

Congress Returns to Tackle Government Funding, Same-Sex Marriage, Railroad Strife

Lawmakers return to work this week with a to-do list that includes passing a critical government-funding bill, solidifying access to same-sex marriage and setting priorities for the U.S. military before the start of the new Congress next year.

Other issues emphasized by Democrats, including passing a ban on the sale of assault-style weapons, are a long-shot given their narrow majority in the Senate. Most legislation requires 60 votes to advance in the Senate. In addition, lawmakers are discussing raising the federal debt ceiling, which limits how much the government can borrow.

California's Homelessness Problem Pits Gov. Gavin Newsom Against Mayors

California Gov. Gavin Newsom is facing off with local government officials, many of whom are fellow Democrats, over responsibility for the lack of progress combating homelessness in America's most populous state.

Mr. Newsom recently put a temporary freeze on $1 billion of state grants for city and county homelessness programs. He also rejected a slate of proposals from local officials outlining how they would spend the money, saying the measures would have reduced homelessness statewide by 2% between 2020 and 2024, which he deemed inadequate.

Puerto Rico's Power Failures Worsen After Private Takeover

A Canadian-American consortium swept into Puerto Rico last year with promises to transform the island's antiquated power grid.

Many residents welcomed the change, tired of subpar service from a state-run utility that left them in darkness for months after a strong hurricane five years ago.

Donald Trump's Dinner With Kanye West, Nick Fuentes Sparks Criticism

WASHINGTON-Criticism of Donald Trump's recent dinner with Kanye West and Nick Fuentes, a white nationalist and far-right personality, mounted over the weekend, with some members of both political parties condemning the former president and calling for him to take a firmer stance on anti-Semitism.

The controversy over the Tuesday dinner came about a week after Mr. Trump announced he is running for president again. Mr. Trump said he didn't know Mr. Fuentes and was accommodating a meeting request from Mr. West, the rapper who goes by Ye. The former president already is facing legal problems and resistance from some fellow Republicans who want to see another party standard-bearer emerge for the 2024 election.

Write to paul.larkins@dowjones.com TODAY IN CANADA

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