MARKET WRAPS

Stocks:

European stocks fell to start a new trading week as protests in China over the country's zero-tolerance approach to Covid-19 weighed on investor sentiment.

Swissquote Bank said that according to experts, if China reopened tomorrow, Covid would spread like wildfire and kill thousands, simply because people are not immune enough and the health system is not ready for the shock.

"This means the Chinese reopening won't be a piece of cake; it looks like the Chinese economy may further suffer, either from endless and pointless lockdown measures, or from a severe health crisis."

Stocks to Watch

Fresenius's shares are trading at a significant discount compared with peers as they are slowed by a series of overhangs driven by corporate structure and recent investment, UBS said.

The healthcare company's new COE can take proactive steps to remove these overhangs, however, UBS said.

Firstly, he can deal with the company's stake in dialysis business Fresenius Medical Care, and he can consider options for Vamed, the healthcare-facility business, according to UBS.

The CEO has also been consistent in communicating focus on returns on capital rather than revenue and earnings growth, and delivery of this message in the coming months should remove some of these overhangs, UBS said.

Economic Insight

Eurozone inflation data for November will be key for the European Central Bank's interest-rate rise in December, Danske Bank said.

"If we get an acceleration in underlying inflation I think they will have to go by 75bp again in December, but there is disagreement within the Governing Council."

There is an underappreciated risk in markets that inflation will stay stubbornly high on strong labor markets, fiscal subsidies and excess savings, Danske Bank said.

Economists in The Wall Street Journal's poll forecast year-on-year HICP to slow to 10.4% in November from 10.6% in October.

U.S. Markets:

Stock futures fell to kick off a new trading week, while Government bonds rose with Wall Street in line for risk- off opening session.

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

The prospect of unrest in China negatively impacting global growth is helping underpin government bond markets, with the 10-year Treasury yield falling 4.4 basis points to 3.644%.

That sees the benchmark bond yield near its lowest level in 10 weeks, also forced down by hopes the Federal Reserve will start slowing the pace of its interest rate rises as inflation cools.

However, news over the weekend about strong festive-season retail sales suggest there are few signs that consumers are yet to buckle under the Fed's tighter policy.

Forex:

The U.S. 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.

U.S. data on housing and consumer confidence are also due this week.

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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.

Bonds:

The growing range of different opinions within the ECB's Governing Council may be in bond market's favor, as yields have been on a downward trend lately, Landesbank Baden-Wuerttemberg said.

"Whereas the latest interest rate hikes of 75 bp were made fairly unanimously, the Governing Council members now increasingly seem to be seeking controversy with regard to 15 December," LBBW said, referring to the ECB's last monetary policy meeting this year.

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Irish 10-year government bonds look expensive relative to their credit rating and are already trading like bonds of an 'AA+/AA'-rated country, Danske Bank said.

"However, looking at debt-to-GDP, there is room for more performance in Ireland [although debt-to-GNI is probably a more correct measure]."

Using the debt-to-GNI [gross national income], Irish government bonds look fairly priced, Danske said.

On Nov. 18, S&P affirmed Ireland's 'AA-' rating and raised the outlook to positive from stable.

Danske recently closed a long position in Irish bonds but said it recommended using an expected syndication in January to go long Ireland again.

Energy:

Crude prices are were almost 3% lower as unrest mounted in China over its Covid-19 policies, adding uncertainty to markets and pushing commodities lower.

SPI Asset Management noted that WTI was trading as low as it did in December 2021, "as traders have little option but to hedge the downside risk of more protracted lockdowns in China."

Metals:

Base metals fell close to 1%, 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.

DOW JONES NEWSPLUS

EMEA HEADLINES

Adidas Top Executives Discussed Risk of Staff's 'Direct Exposure' to Kanye West Years Ago

Adidas AG's chief executive and senior leaders in Germany discussed as far back as four years ago the risk of continuing a relationship with Kanye West that they feared could blow up at any moment, according to people familiar with the matter and documents reviewed by The Wall Street Journal.

A 2018 presentation to members of the Adidas executive board, a group that included CEO Kasper Rorsted and the head of human resources, highlighted the risks for employees interacting with Mr. West and detailed mitigation strategies for the relationship with the Yeezy creator, including cutting ties with the rapper-turned-designer, documents show.

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.

Standard Bank Posted Double-Digit Net Interest Income Growth in 10 Months to October

Standard Bank Group Ltd. said Monday that it saw double-digit net interest income growth over the past 10 months, and it expects full-year higher total income growth and cost growth than previously guided.

The South African lender said net interest income growth increased over the period primarily due to robust average balance sheet growth, and positive endowment tailwinds from higher average interest rates.

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.

Iran's Top Paramilitary Commander Warns Protesters in Eastern Province Against Unrest

Iran's top paramilitary commander on Sunday visited a restive province in eastern Iran, where the military has attempted to violently suppress a two-month-old protest movement, to warn locals against further unrest.

Major General Hossein Salami, the commander in chief of the Islamic Revolutionary Guard Corps, traveled to Sistan-Baluchistan's capital of Zahedan, where he praised the Baloch minority who live there for their "chivalry, zeal, love, loyalty and sacrifice," according to the Fars news agency. At the same time, he threatened more crackdowns on protesters he alleged were being manipulated by foreign powers.

EU Talks on G-7's Price Cap for Russian Oil Stall but Deal Still Seen Likely

European Union talks on approving a price cap on Russian oil hit a snag amid differences among the 27 member states, although diplomats said they were still confident a deal could be struck in the coming days.

EU governments have clashed over the price level at which to set the cap and some of the other details of the mechanism put forth by the Group of Seven advanced democracies. The price cap is the West's attempt to squeeze Russia's oil revenues as punishment for its invasion of Ukraine while keeping global oil supplies steady-and avoiding an increase in global energy prices. With it, the G-7 and Australia aim to ban providing maritime services for Russian oil shipments unless the oil is sold below the price.

GLOBAL NEWS

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.

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.

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.

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.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

November 28, 2022 05:39 ET (10:39 GMT)