MARKET WRAPS

Watch For:

Factory Orders for October; ISM Report on Business Services PMI for November; Canada Building Permits for October

Opening Call:

Today's Headlines/Must Reads

- China Loosens Covid Restrictions as Public Anger Simmers

- Fed Could Pencil in Higher Interest Rates Next Year While Slowing Hikes in December

- Bond Rally Drags 10-Year Treasury Yield Back Down to 3.5%

- Must Inflation Be Brought Down All the Way to 2%?

- New Zealand Plans to Make Facebook, Google Pay for News

- Credit Suisse's Investment Bank Spinoff Attracts Saudi Crown Prince

Follow WSJ markets coverage here .

Stock futures traded lower on Monday, as investors remained keyed on interest rate policy from the Federal Reserve and despite a surge in China stocks over a loosening of Covid-19 restrictions in the country.

The prospects of more robust activity in the world's second biggest economy was damping demand for sovereign debt and pushing yields higher.

The increase in benchmark borrowing costs was helping contain demand for stocks, with some analysts also noting that techinical factors may hobble a rally that has seen the S&P 500 rise 13.8% from its 2022 low hit in mid October.

In Asia, benchmark indexes in Hong Kong and mainland China jumped, after local Chinese authorities took more steps to ease strict Covid-19 policies that have crimped the country's growth.

"We have this happy congruence with more and more easing in Covid policy, " Saxo Markets Hong Kong said. That is making a stronger Chinese economic rebound next year more likely.

However, the optimism may not last, Nomura said. It elaborated that should China continue to open up, caseloads could shoot up, leading to rising death rates. How Beijing responds will continue to inject volatility into Chinese markets.

"This is exactly what we saw in some other markets globally in their initial phases of reopening."

Stocks to Watch

Apple shares fell 0.2% in premarket trading after the iPhone maker was reported to have accelerated plans to shift some of its production outside China, long the dominant country in the supply chain.

Credit Suisse's New York-traded shares rose 5% premarket. Saudi Arabia's crown prince and a U.S. private-equity firm run by Barclays's former chief executive are among investors preparing to invest $1 billion or more into Credit Suisse's new investment bank.

Delta Air Lines is offering pilots raises amounting to at least 34% over the term of a proposed deal, another sign of how pilots are pushing the now-booming airline industry for better pay and other benefits.

Tesla has slashed output of the Model Y at its Shanghai factory in December by more than 20% from November in its latest production plan, Reuters reports, citing unnamed sources. The reason for the lower production couldn't be immediately determined, the report said.

XPO Logistics doesn't expect the divestiture of its European business to take place in the near term, mainly due to weakened capital markets in Europe, it said in a SEC filing. Shares fell 2% after hours.

Other Movers

The ADRs of Baidu, JD.com and Pinduoduo added about 5% premarket following the rally in Hong Kong and mainland Chinese stocks.

Agiliti, SJW Group and Cushman & Wakefield will join the S&P SmallCap 600. In after-hours trading, Agiliti, SJW and Cushman & Wakefield each gained around 7%.

Allegro Microsystems and CubeSmart will join the S&P MidCap 400 on Dec. 19. Their shares gained around 6% in after-hours trading.

Forex:

The dollar's gains after Friday's stronger-than-expected jobs data proved brief and it soon turned lower, suggesting it won't return to this year's peak and will most likely weaken in 2023, Swissquote said.

However, the falls won't be smooth as Fed interest rates still need to rise further, Swissquote said.

The broadly weak dollar helped sterling rise to a near six-month high of $1.2346, but the gains soon fade and ING said a rise beyond $1.25 looks unlikely.

"We struggle to see cable [GBP/USD] extend its rally to 1.25 and beyond, " ING said. "A contraction below 1.20 seems more appropriate given global and U.K. macro fundamentals."

Ahead of next week's Bank of England decision--which comes alongside various other rate decisions, including in the U.S. and eurozone--the pound is likely to be driven largely by the dollar and by risk sentiment, ING said.

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China's yuan strengthened below a closely watched level against the dollar, reaching its strongest value in nearly two months.

The more freely traded offshore yuan gained about 0.8% against the greenback to trade around 6.95 against the dollar in mid-afternoon Hong Kong time. It was the first time the yuan had gone below 7 against the U.S. dollar since mid-September.

Read more here .

Energy:

Oil pared early gains at the start of a crucial week for energy markets, as the impact of a ban and price cap on Russian oil remains unclear. Prices had risen more than 2% in early Asian trading.

Oil traders have many factors to consider Monday, with the price cap and EU ban on Russian oil coming into force and OPEC over the weekend deciding to leave its production levels unchanged. Some expectations had built that the cartel was considering increasing output so its decision to hold fire could be driving the modest gains.

Oil market participants are wondering what the impact of a Western-led price on Russian oil due to come into force Monday will be. According to JPMorgan, the answer is "likely nothing."

The EU's $60 a barrel cap is higher than the price of Russian oil at key ports on the Black and Baltic Seas. Russia's Urals crude has recently traded between $65 and $70, though the price at some ports is below $55 a barrel.

The EU and G-7 said they will renew the price cap regularly. If they continue to set the level "close to Russia's realized price, then status quo will prevail with minimal market disruptions," JPMorgan said.

Metals:

Base metals and gold edged higher in Europe as dollar weakness and more positivity around a China reopening boosted sentiment in global markets.

"The driving force today is the higher expectations for economic recovery in China," Marex said. More than 10 cities had waived proof of Covid test results for entrances into public places, it said.

"With China's reopening seemingly a matter of time, the focus switched to economic development," Marex said, adding this was boosting metals demand alongside further strength from a lower dollar.

TODAY'S TOP HEADLINES

New Zealand Plans to Make Facebook, Google Pay for News

New Zealand said it would seek to require online platforms like Alphabet Inc.'s Google and Facebook owner Meta Platforms Inc. to pay news publishers for content, becoming the latest country to wade into a worldwide debate about whether tech giants unfairly benefit from news shared on their platforms.

New Zealand's proposal will be based on a similar law in Australia and introduced legislation in Canada and will be designed to act as an incentive for digital platforms to reach voluntary deals with local news outlets, according to a statement from New Zealand Broadcasting Minister Willie Jackson.

Credit Suisse's Investment Bank Spinoff Attracts Saudi Crown Prince

Saudi Arabia's crown prince and a U.S. private-equity firm run by Barclays PLC's former chief executive are among investors preparing to invest $1 billion or more into Credit Suisse's new investment bank, people familiar with the matter said.

Crown Prince Mohammed bin Salman is considering an investment of around $500 million to back the new unit, CS First Boston, and its CEO-designate, Michael Klein, some of the people said. Additional financial backing could come from U.S. investors including veteran banker Bob Diamond's Atlas Merchant Capital, people familiar with that potential investment said. Credit Suisse previously said it had $500 million committed from an additional investor it hasn't named.

TSMC's Arizona Chip Plant, Awaiting Biden Visit, Faces Birthing Pains

TOKYO-The $12 billion Arizona semiconductor plant under construction that President Biden is visiting Tuesday represents U.S. hopes for a renaissance in manufacturing, but the Taiwanese company building it says it won't be easy.

High costs, lack of trained personnel and unexpected construction snags are among the issues cited by Taiwan Semiconductor Manufacturing Co. as it rushes to get the north Phoenix factory ready to start production in December 2023.

FDA Takes Tougher Line on Fast-Tracked Drugs

The Food and Drug Administration is taking a harder line on its program that fast-tracks drug approvals based on preliminary evidence, spurring GSK PLC, Roche Holdings AG and other drugmakers to remake plans for their drugs or pull them from the market.

Under the accelerated-approval program, the FDA clears the use of prescription medicines faster than it normally would. The agency relies on preliminary data to make the decision, but asks companies to conduct follow-up studies to confirm that the drug works.

CVS Tries Out Remote System to Help Fill Prescriptions

CVS Health Corp. is testing a system that allows pharmacists to process prescriptions in part remotely, a move it said could improve store working conditions and the experience for customers as the company grapples with a shortage of pharmacists.

CVS has equipped roughly 8,000 of its more than 9,000 U.S. drugstores with technology that allows pharmacists to review and enter prescription information remotely while still meeting patient-privacy requirements. About 400 of CVS's 30,000 pharmacists are currently helping prepare prescriptions either at central locations, from their homes or in stores other than where medications will be dispensed, the company said.

Chevron's Long Game in Venezuela Brings It Political Risk

Chevron Corp. scored a reversal of fortunes in Venezuela last weekend after the U.S. government allowed it to pump oil there again, but its new license to operate carries considerable risk.

The oil giant will have to partner with an authoritarian regime accused of crimes ranging from human-rights violations to sprawling corruption to state-sponsored narcotics trafficking.

Clashes Over FTX Bankruptcy Go Global

The collapse of cryptocurrency exchange FTX has opened a hornet's nest of squabbles between foreign governments and its new U.S. chief executive, John J. Ray III.

In Cyprus, the country's securities regulator is complaining that Mr. Ray's decision to place FTX in bankruptcy has stymied investigations and is preventing European customers from getting their money back. Officials in the Bahamas, where FTX moved its headquarters last year, are accusing Mr. Ray of making false statements and suggesting that his team is motivated by the prospects of earning hefty legal fees. In Turkey, authorities have seized the assets of FTX's local subsidiary, an affront to Mr. Ray's efforts to sweep FTX's assets into the chapter 11 process in Delaware.

Business-Software Companies Say Customers Are Pulling Back Amid Economic Concerns

Business-software companies say customers are being more cautious with their spending in response to a challenging economy, adding to the tech industry's list of concerns.

Customers for companies such as Salesforce Inc., Okta Inc. and CrowdStrike Holdings Inc. are taking longer to sign deals, and in some cases slowing their hiring plans as they try to protect their bottom lines, the software providers reported this past week. That trend has created a cloudy outlook for many in the once-booming business-software sector, which benefited from years of demand as customers looked to use the products to trim costs and maintain their businesses during the pandemic.

Robert Iger's Return Opens Door for Florida Lawmakers to Consider Restoring Disney's Tax Privileges

A Florida lawmaker said Robert Iger's return as Walt Disney Co.'s chief executive has boosted the prospects that the state could work out a new deal with the entertainment company after passing an April law to end certain Disney tax privileges.

A special district, created in 1967 and known as the Reedy Creek Improvement District, has exempted Disney from numerous regulations and various taxes and fees. It has permitted the company to manage its theme parks and resorts in Florida with little red tape for more than 50 years. Under the law passed in April, the special district would be dissolved on June 1, 2023.

Apple Makes Plans to Move Production Out of China

In recent weeks, Apple Inc. has accelerated plans to shift some of its production outside China, long the dominant country in the supply chain that built the world's most valuable company, say people involved in the discussions. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn Technology Group.

Turmoil at a place called iPhone City helped propel Apple's shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones, according to market-research firm Counterpoint Research.

From CNN to Paramount, Media Companies Cut Jobs as Pressures Mount

An advertising slowdown, economic worries and strains of the shift to streaming have many major media companies in cost-cutting and layoff mode.

News organizations, TV networks, movie and television studios, and entertainment giants laid off hundreds of workers over the past week alone, including Warner Bros. Discovery Inc.'s CNN and Paramount Global's television-production units.

Delta Air Lines Offers Pilots 34% Raises Over Four-Year Deal

Delta Air Lines Inc. is offering pilots raises amounting to at least 34% over the term of a proposed deal, another sign of how pilots are pushing the now-booming airline industry for better pay and other benefits.

The proposal still needs to be approved by union leaders and then would have to be ratified by Delta's pilots. But an agreement would set a bar for rivals that are also trying to hammer out new contracts in what has effectively become an industrywide standoff between airlines and pilots' unions.

Fed Could Pencil in Higher Interest Rates Next Year While Slowing Hikes in December

Federal Reserve officials have signaled plans to raise their benchmark interest rate by 0.5 percentage point at their meeting next week, but elevated wage pressures could lead them to continue lifting it to higher levels than investors currently expect.

They have raised rates this year at the fastest pace since the early 1980s, including by 0.75 point at each of their past four meetings to combat inflation. Fed Chair Jerome Powell indicated last week that the central bank was prepared to downshift the size of rate increases at its coming meeting on Dec. 13-14.

Bond Rally Drags 10-Year Treasury Yield Back Down to 3.5%

Hopes that inflation is easing have driven a weekslong rally in government bonds, pulling the 10-year U.S. Treasury yield back to 3.5% for the first time since September.

Treasurys started rallying with stocks after the Labor Department released better-than-expected consumer-price index data on Nov. 10. That move was supercharged last week when Federal Reserve Chairman Jerome Powell sent the clearest signal yet that the central bank plans to raise short-term interest rates by half a percentage point at its Dec. 13-14 meeting, a step down from the 0.75 percentage point increases of the past four meetings.

Oil Price Rises After Russia Cap Kicks In

The West imposed sanctions on Russian crude, pitching the energy conflict with Moscow into an unpredictable new phase that could inject further volatility into global oil markets.

The European Union and U.K. barred inbound shipments of Russian crude Monday-a watershed for a continent striving to end its dependence on Russia's fossil fuels after Moscow invaded Ukraine and weaponized supplies of natural gas. In tandem, the EU, the U.S. and allies placed curbs on shipping, insuring and funding Russian crude anywhere in the world.

OPEC+ Keeps Oil Curbs Despite Russia Price Cap

OPEC+ said Sunday it would lock in current production levels, a pause that suggests the world's leading oil producers are uncertain about the direction of crude prices with a price cap on Russia's petroleum exports set to take effect.

The decision on Sunday allows the Organization of the Petroleum Exporting Countries and a group of producers led by Russia-collectively known as OPEC+-to take more time to assess the market impact of an EU and Group of Seven price cap, which is intended to crimp Russia's revenue for the Ukraine war. It locks in a 2 million-barrels-a-day production cut decided in October.

Must Inflation Be Brought Down All the Way to 2%?

"Why must inflation be around 2%?" is a question that obsessed central bankers back when inflation was stubbornly below their favorite target. It makes more sense to ask it now.

This past week, a string of data has suggested that inflation is finally on a downward trend. The U.S. personal-consumption expenditures price index excluding food and energy-the Federal Reserve's preferred measure of inflation-recorded its second-smallest monthly increase for the year, even as consumer spending jumped and job growth continued. Meanwhile, eurozone inflation receded to 10% in November, suggesting that October's 10.6% was the peak.

Economists Think They Can See Recession Coming-for a Change

If the economy shrinks next year, no one should be surprised. We're facing the most widely forecast recession in history-and investors don't seem to care.

Recession in Europe and the U.K. is already the average of economic predictions, while the U.S. average forecast for next year is growth of a miserly 0.2%, according to Consensus Economics, the third lowest since 1989.

Dow Shines as Higher Rates Squeeze Nasdaq's Tech Stocks

The Dow is beating the broader market to a degree not seen in nearly a century.

The Dow Jones Industrial Average is down 5.3% this year, which isn't normally a cause for celebration. But that performance looks downright golden compared with the broad S&P 500, which is off 15%, and the tech-heavy Nasdaq Composite, which has dropped 27%.

What Types of Bonds Deliver the Best Returns?

With interest rates on the march this year, many investors are looking at bonds again, for the first time in 10-plus years, as a true income-delivering alternative to stocks.

Indeed, while investors have exited equities along with the downturn in that sector, many have sought safety in short-term debt holdings such as money-market funds.

Threat of Rail Strike Reveals Persistent Supply-Chain Risks to U.S. Economy

The threat of a railroad strike this month exposed the vulnerability of U.S. transportation networks and revealed potential new risks of supply-chain disruptions just as pandemic-era bottlenecks were fading.

President Biden signed into law a bill Friday compelling freight railroads and their workers' unions to accept a labor agreement, averting a strike that might have disrupted a logistical linchpin of the economy. Even with the dispute resolved, the episode brought about a heightened awareness that supply hiccups could become an ongoing feature of business life in America.

China Loosens Covid Restrictions as Public Anger Simmers

HONG KONG-Local authorities across China are paring back some of their strictest Covid-19 control measures, just days after public anger spilled over into rare protests against a zero-tolerance approach that has kept the country largely isolated for three years.

In recent days, officials in major cities-including Beijing and other areas where protests broke out a week ago-said they were lifting some curbs on residents' movements, such as by ending mandatory Covid testing for people who want to use public transport or enter parks and other public spaces.

States Advancing Gun-Control Proposals Face Legal Uncertainty

Democratic-led states where gun restrictions were upended by a recent U.S. Supreme Court ruling are pushing ahead with new measures to ban concealed weapons from places such as hospitals, parks and houses of worship.

Lawmakers in several states are considering legislation to replace their old permitting regimes, which gave state licensing officials wide latitude to deny permits unless a gun owner could provide sufficient justification for carrying a concealed weapon outside the home. The 6-3 high-court opinion said that New York officials had too much discretion. The court also set a new constitutional test for state and local gun-control measures: They must be consistent with the nation's historical tradition of firearms regulation.

FDA Takes Tougher Line on Fast-Tracked Drugs

The Food and Drug Administration is taking a harder line on its program that fast-tracks drug approvals based on preliminary evidence, spurring GSK PLC, Roche Holdings AG and other drugmakers to remake plans for their drugs or pull them from the market.

Under the accelerated-approval program, the FDA clears the use of prescription medicines faster than it normally would. The agency relies on preliminary data to make the decision, but asks companies to conduct follow-up studies to confirm that the drug works.

U.N. Nuclear Agency Under Pressure to Share Knowledge of Alleged Russian Abuse of Ukraine Plant Workers

Railroads Focus on Stabilizing Workforce After Strike Is Averted

President Biden signed a bill Friday restricting rail workers from striking, but the industry is still struggling with a big problem: having enough staff to handle customer demand.

The largest U.S. freight railroads have reported strong profits in recent years, helped by higher prices and steady business in transporting everything from automobiles to fertilizer. Export demand for coal and grain, stemming from disruptions in supply chains in Europe after Russia invaded Ukraine, bolstered freight volumes this year, railroads said.

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

Earnings:

None scheduled

Economic Indicators (ET):

0815 Nov Official International Reserves

0830 Oct Building Permits

Expected Major Events for Monday

00:01/UK: CBI Economic Forecast

00:30/JPN: Nov Japan Services PMI

06:00/RUS: Nov Russian Services PMI

08:45/ITA: Nov Italy Services PMI

08:50/FRA: Nov France Services PMI

08:55/GER: Nov Germany Services PMI

09:00/UK: Nov UK monthly car registrations figures

09:30/UK: Nov S&P Global / CIPS UK Services PMI

09:30/UK: Nov UK Official Reserves

13:15/CAN: Nov Official International Reserves

13:30/CAN: Oct Building permits

14:45/US: Nov US Services PMI

15:00/US: Nov ISM Report On Business Services PMI

15:00/US: Oct Manufacturers' Shipments, Inventories & Orders (M3)

15:00/US: Nov Employment Trends Index

16:00/US: Nov Global Services PMI

17:59/UK: 3Q Household Finance Review expected around now

23:30/JPN: Oct Household Spending

All times in GMT. Powered by Onclusive and Dow Jones.

Expected Earnings for Monday

Allied Healthcare (AHPI) is expected to report for 1Q.

Avaya Holdings Corp (AVYA) is expected to report $-0.85 for 4Q.

DLH Holdings (DLHC) is expected to report $0.13 for 4Q.

GitLab Inc (GTLB) is expected to report for 3Q.

Neptune Wellness Solutions Inc (NEPT,NEPT-T) is expected to report for 2Q.

Newcore Gold Ltd (NCAU.V) is expected to report for 3Q.

Powell Industries (POWL) is expected to report $0.19 for 4Q.

Science Applications International Corp (SAIC) is expected to report $1.33 for 3Q.

Sumo Logic Inc (SUMO) is expected to report for 3Q.

Veru Inc (VERU) is expected to report $-0.29 for 4Q.

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ANALYST RATINGS ACTIONS

AppHarvest Cut to Perform From Outperform by Oppenheimer

Asana Cut to Neutral From Outperform by Baird

Asana Cut to Neutral From Overweight by Piper Sandler

AvalonBay Cut to Equal-Weight From Overweight by Morgan Stanley

Black Knight Cut to Equal-Weight From Overweight by Barclays

Blackstone Cut to Equal-Weight From Overweight by Barclays

Bright Horizons Family Cut to Equal-Weight From Overweight by Barclays

Cheesecake Factory Cut to Neutral From Outperform by Wedbush

CrowdStrike Holdings Cut to Peer Perform From Outperform by Wolfe Research

DoorDash Cut to Sector Perform From Outperform by RBC Capital

Ecolab Cut to Equal-Weight From Overweight by Barclays

Edwards Lifesciences Cut to Peer Perform From Outperform by Wolfe Research

HOOKIPA Pharma Cut to Underperform From Buy by B of A Securities

Natl Storage Affiliates Cut to Neutral From Outperform by Baird

Pebblebrook Hotel Trust Cut to Market Perform From Outperform by BMO Capital

Rigel Pharmaceuticals Raised to Buy From Neutral by Citigroup

Salesforce Cut to Peer Perform From Outperform by Wolfe Research

SQZ Biotechnologies Cut to Neutral From Buy by HC Wainwright & Co.

TransUnion Cut to Equal-Weight From Overweight by Barclays

UDR Inc Raised to Overweight From Equal-Weight by Morgan Stanley

Y-mAbs Therapeutics Cut to Neutral From Buy by B of A Securities

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

(END) Dow Jones Newswires

December 05, 2022 06:22 ET (11:22 GMT)

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