Economy

The beverage company has been experimenting with pack sizes to drive growth. It offered 12-ounce slim cans to attract customers with tight budgets in the U.S., while launching reformulated versions of its Sprite and Fanta in India and South Korea.North America revenue rose 12% and it expects annual organic sales to grow about 10% compared with a prior view of 9% to 10% rise. Its average selling price rose 10%, while unit case volumes fell 1%.Shares of the company, however, slipped 0.5% in premarket trading as Coca-Cola (NYSE:KO) reiterated its growth forecast for annual adjusted profit of 5% to 6% despite price hikes.”The weakness of the stock a little bit here is that they’re leading more on price … (while) guidance is just being maintained here,” said Christian Greiner, senior portfolio manager at F/m Investments, which owns shares in Coca-Cola.Investors were expecting growth in volumes, which was impacted by price-conscious consumers in the Middle East and China, he said. Coca-Cola’s revenue in Europe, the Middle East and Africa fell 7% and in the Asia Pacific region it dropped 4%. Earlier this month, rival PepsiCo (NASDAQ:PEP) CEO Ramon Laguarta said price increases and borrowing costs were hurting consumer budgets. The Frito-Lay chips maker cut its annual sales forecast after posting quarterly revenue below expectations. Coca-Cola’s net revenue rose 0.3% to $11.95 billion. Analysts had expected a 2.62% drop to $11.60 billion, according to data compiled by LSEG.The company’s adjusted profit came in at 77 cents per share, compared with estimates of 74 cents. More

WASHINGTON/LONDON (Reuters) – The recent cascade of countries defaulting on their debt has brought back into vogue complex securities – born in the 1980s – that aim to speed up restructurings. The renaissance of so-called State Contingent Debt Instruments, which lure investors with new bonds that promise payouts if the country hits certain economic or fiscal targets, has helped countries from Ukraine to Sri Lanka resolve difficult debt negotiations.Some experts say they can help cash-strapped countries to persuade bondholders to accept the potential losses needed to get the countries back on track with their debts. “When SCDIs are used to address a fundamental disagreement on the prospects of a country … then I really believe this is a deal accelerator,” said Pierre Cailleteau, managing director at Lazard (NYSE:LAZ)’s sovereign advisory group, which advised governments in Sri Lanka, Suriname and Zambia on debt reworks. Privately, other debt experts worry that their use could boost borrowing costs down the line by making some investors reluctant to buy the bonds when they later trade on the market. Future debt strains could be trickier to navigate, they warn.COMPLEX BUT QUICKER Authorities in Ukraine, Zambia, Sri Lanka and Suriname did not immediately respond to a request for comment. The Global Sovereign Debt Roundtable – an initiative joining representatives from countries, private lenders, the World Bank and the G20 – will discuss SCDIs at a meeting on the sidelines of the International Monetary Fund/World Bank autumn meetings on Wednesday.Ukraine, whose lightning-fast wartime debt rework defied the odds, used SCDIs as part of a package to convince investors in August to swap their defaulted bonds for newer instruments – including a GDP-linked bond, which would pay investors more if the economy grows faster than anticipated. Economic growth is a common metric, though SCDI payouts can also be linked to revenue stemming from natural resources or tax receipts.These differ from the bulk of sovereign bonds, labelled “plain vanilla,” which pay a predetermined amount in interest over their lifetime before a final repayment.But SCDIs can be a double-edged sword. Investors are increasingly at odds with the International Monetary Fund’s economic projections, said Sergei Strigo, co-head of emerging markets fixed income at Europe’s largest asset manager Amundi. “The only way for investors to get some recovery is through these contingent instruments, but it’s not necessarily the best way to proceed in my view, because it’s very complicated,” Strigo said. Still, speeding up restructurings is crucial; Zambia took nearly four years to complete its rework, and Sri Lanka is still finalising an agreement with bondholders more than two years after defaulting. Whilst in default, the countries lose access to capital markets and funds for investments, from infrastructure to education.BRIDGING THE GAPSCDIs are not new; Latin American countries first used them in Brady bonds in the late 1980s after the region’s debt crisis. Argentina issued GDP-linked warrants in 2005, Greece used them as part of its 2012 restructuring and Ukraine added them to its 2015 rework.History paints a mixed picture on their success. Researchers at the Bank for International Settlements examining Argentina, Greece and Ukraine in a 2022 report found governments faced a “high and persistent” premium. The mark up demanded by investors, over and above the liquidity and default premium that affected issuers’ other bonds, was between 4.24%-12.5% on contingent instruments in the five years following issuance, BIS found.COURTS AND LACK OF CAPS Design flaws have also plagued past SCDI instruments. Hedge funds allegations that Buenos Aires manipulated data and payment calculations ensnared Argentina into lengthy legal battles over its 2005 GDP warrants, while cash-strapped Ukraine faces billions of dollars in payments for GDP warrants that did not cap investor payouts.The troubles helped shape newer instruments. Zambia’s 2024 bond, linked to its debt carrying capacity – an assessment of how much debt a country can carry before the burden becomes too much – as well exports and fiscal revenues, will depend on IMF readings, rather than government statistics. Experts say those designing new instruments also focus on making sure they are eligible for benchmarks, such as JPMorgan’s widely followed Emerging Market Bond Index (EMBI). This is key to keeping investors interested in buying the instruments – and thus government debt costs down. Ukraine’s GDP warrants, for example, were not index eligible, but its August-launched bonds are.Still, SCDIs come at “a price” for borrowers, said Stefan Weiler, head of CEEMEA debt at JPMorgan, one of the banks on Ukraine debt sales. “It does create for governments a level of uncertainty that is not really helpful,” Weiler said, adding Kyiv had little choice, given the enormous uncertainty surrounding its restructuring. “Sophisticated investors probably like it, because the chances of (markets) mispricing of the product are higher – there is an opportunity to make a return,” he said. Sri Lanka, which has yet to formally execute its rework, could be a test case. Its recently announced deal would include macro-linked bonds that connect debt repayments with how well it is hitting IMF growth targets, adjusting both principal and coupon payments to the upside and the downside and offering more breathing space in times of distress. But the country’s recent stronger-than-expected growth forecasts have raised questions around how payments will shape up. Lazard’s Cailleteau is optimistic.”If we succeed that will probably set a standard in terms of intellectual approach to the issue,” he said. More

WASHINGTON (Reuters) – Turkey should avoid a repeat of its last inflation-fuelling minimum wage hike when the next raise is due on Jan. 1 and focus on support measures for the poorest part of the population instead, the IMF’s mission chief for the country told Reuters.Jim Walsh, speaking on the sidelines of the IMF World Bank annual meeting in Washington, also said talk of interest rate cuts was “probably premature”, given that sequential inflation was still running well above 2%. Ankara is expected to announce in December by how much it will raise the minimum wage at the start of 2025 after delivering a 49% hike in January of this year, which pushed inflation sharply higher in the first quarter. “We would hope that doesn’t happen this year, because we know from experience in many countries with high inflation that wage-setting like this at a national level is a big anchor for inflation expectations,” said Walsh. “There’s a trade-off that the authorities have to make and they’re quite aware of it.”Instead, Ankara should focus on developing social programs that will provide support for low-income households through cash transfers or through better targeting government support to help bolster the income of workers on lower wages, Walsh said.Market expectations for the January minimum wage hike stand at around 25%, according to bankers.Inflation climbed sharply in the wake of the last hike, hitting a peak of 75% in May, but has been slowing since and fell to 49.4% in September – dipping for the first time in the current cycle below the benchmark interest rate of 50%. Turkey’s central bank held rates in October and warned a bump in recent inflation data lifted uncertainty, a hawkish signal that could reinforce views that policy easing will not begin until next year. While financial conditions had already tightened, Walsh said the central bank should further strengthen its communication and that more rate hikes may be necessary if the bank really wanted to hit its inflation target of 14% by year-end 2025. “The central bank has often sounded hawkish, and they say that they will keep rates where they are until they see that sequential inflation is on a downward trend,” said Walsh. However, markets were still ripe with speculation about when the central bank would begin to lower rates, he said. “When sequential inflation is still running at 2.5% a month, talk of cutting is probably premature.”The IMF expects inflation to stand at 24% by the end of next year – broadly in line with a Reuters poll that predicted inflation would fall to 25% by then.Turkey’s central bank is expected to wait until December or January to cut interest rates, according to a Reuters poll this month, as economists abandoned predictions of an earlier move. It is forecast to cut rates by 20 points to 30% by end-2025.A mix of unanchored inflation expectations and large energy import needs made Turkey more vulnerable to a quicker and broader feed-through to inflation from possible energy shocks, Walsh said, adding the country could counter that by ramping up renewable energy production. The IMF would also encourage Turkey to push ahead with further reducing costly energy subsidies, Walsh said, while buffeting poorer households against the fallout. “The sooner you do it, the more money you save from reforming the subsidies.” More

Trading volumes at exchanges tend to jump during periods of heightened uncertainty as clients increase hedging activity to manage risks.This drove double-digit growth across all CME asset classes in the reported quarter.The company’s total average daily volume (ADV) jumped 27% from a year earlier to a quarterly record of 28.3 million contracts.The ADV of interest rate products, which are often used to hedge against volatility stemming from changes in the benchmark interest rates, jumped 36% to a quarterly record of 14.9 million contracts.Equities trading was another bright spot as volatility sparked by a sell-off in August, following a weaker-than-expected July jobs report, bolstered volumes. CME’s equities ADV jumped 17% to 7.4 million contracts in the quarter.”Q3 2024 was the best quarter in CME Group (NASDAQ:CME) history,” said CEO Terry Duffy.Meanwhile, CME’s energy ADV jumped 21% to 2.6 million contracts. Mounting geopolitical tensions in the Middle East have increased volatility in the global commodity and energy markets.Clearing and transaction fees, CME’s chief source of revenue, jumped 19.5% to $1.30 billion in the reported quarter, while market data revenue rose 6.3% to $178.2 million. Total revenue jumped 18.4% to record $1.6 billion.Net income attributable to common shareholders of CME Group rose to $901.3 million, or $2.50 per share, in the three months ended Sept. 30, from $740.8 million, or $2.06 per share, a year earlier.CME shares have risen 7.4% so far this year, underperforming the 22.7% jump in the benchmark S&P 500 index. More

Earlier this month, the ECB slashed borrowing costs by a quarter point for a second straight meeting as policymakers look to address twin slowdowns in inflation and growth in the Eurozone currency area.It was the first back-to-back interest rate drawdown in 13 years, and served as a sign that the ECB has begun to pivot away from a period of interest rate hikes designed to quell elevated price growth.Instead, the ECB has indicated that it is refocusing policy on trying to reinvigorate a sputtering Eurozone economy that has struggled to keep pace with the US for much of the last two years.Even still, officials have so far said they are only aiming to ratchet rates down to a neutral level which, in theory, neither aids nor hinds economic activity and keeps inflation stable.But, citing conversations with half a dozen unnamed sources, Reuters said the ECB has begun to discuss if rates may need to go below that neutral mark. One source with knowledge of the deliberations said “I think neutral is not enough,” Reuters added.The sources stressed that any consensus was still far away, Reuters noted.Business activity and sentiment surveys out of the currency bloc undershot estimates in September. Meanwhile, an updated inflation reading released ahead of the ECB’s announcement showed that headline consumer price growth decelerated to an annualized 1.7% last month. The figure, which was initially 1.8%, is below the central bank’s stated 2% target.”The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity,” the ECB has said. More

BERLIN (Reuters) -German Economy Minister Robert Habeck laid out plans to remedy weak growth in Europe’s largest economy on Wednesday by starting a fund to stimulate investment and changing course on Germany’s budget policy.Creating a climate-neutral modern industrial future requires massive investment, both public and private, which is being held back by Germany’s restrictive budgetary policy, Habeck wrote in a 14-page position paper.”There is too little leeway in the budget to enable private and public investment on a significantly larger scale than today,” he wrote.The International Monetary Fund (IMF) this week significantly downgraded its forecasts for Germany. No other major industrialized country is currently weakening as much.Habeck, whose name has been widely floated as the Greens’ candidate for chancellor in elections next year, took aim specifically at the country’s constitutionally enshrined cap on spending.The debt brake is a sacred cow of the Free Democrats (FDP), which governs along with the Greens and Chancellor Olaf Scholz’s SPD. To bypass it, Habeck wants to introduce a multibillion-euro “Germany Fund” to modernise infrastructure and provide an “unbureaucratic” investment premium of 10% for all companies.The proposed fund would focus in particular on small and medium-sized enterprises, large corporations and start-ups.The investment premium would be offset against the company’s tax liability. Unlike a simple improvement in write-offs, companies that do not make a profit at all, such as newly founded ones, would also receive the premium, wrote Habeck.The measure should be limited to five years, he said, adding that greater economic growth should ensure the national debt would increase only moderately related to economic output.Habeck, who joins a government delegation to India this week for talks on trade and investment, also called for slimmed-down trade deals with countries such as India and Indonesia that, for example, focus on industrial standards and leave out agricultural goods. COALITION RESPONSEFDP deputy leader Wolfgang Kubicki said Habeck’s proposals could only be seen as serious if they acknowledged that there was not enough political support to abolish the brake.He told the Rheinische Post newspaper that Habeck needed to state what the measure would cost current and future taxpayers.The SPD’s general secretary, Matthias Miersch, welcomed the proposal and said it was crucial now that all parties are working constructively on how to strengthen the German economy. An industry summit planned for next week, where Scholz will meet industry associations, trade unions and firms, “is the right place for this,” he told the Rheinische Post. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president and chief investment strategist at Yardeni ResearchFrom early March 2022 through August 2024, Federal Reserve officials aimed to tighten monetary policy sufficiently to bring inflation down even though it was widely expected to cause a recession. They succeeded in doing so without a recession. Now inflation is closing in on their 2.0 per cent target, they are aiming to keep the unemployment rate from rising. They intend to do so by lowering the federal funds rate to its “neutral” level, at which inflation remains subdued while unemployment remains low. This nirvana level is often called R-star (or R*) by economists.The problem is that the economy very nearly achieved that state before the policy-setting Federal Open Market Committee cut the federal funds rate by half a percentage point on September 18 to 4.75 to 5.00 per cent. The FOMC also signalled more easing ahead in its quarterly Summary of Economic Projections of committee members. This showed that the median forecast of participants for the “long run” neutral federal funds rate was 2.90 per cent. They collectively deemed this would be consistent in the long run with the unemployment rate at 4.2 per cent and an inflation rate of 2.0 per cent. This implies that the real neutral federal funds rate is 0.90 percentage points, well below the current level.Of course, the concept of a neutral federal funds rate is a totally theoretical concept. Everyone agrees that it cannot be measured and will vary over time depending on numerous economic factors. Even the committee’s estimates for this long-run rate varied from 2.37 to 3.75 per cent.The concept of a real neutral federal funds rate is just as unfathomable, if not more so. It is extremely doubtful that anyone bases their economic decisions on an overnight bank lending rate that is adjusted for inflation measured on a year-over-year basis.Fed officials were undoubtedly alarmed by the apparent weakness in the labour market shown by data released just before their September FOMC meeting. But after the meeting, it was reported that September’s employment gains were stronger than expected and that July and August payrolls were revised higher. Furthermore, the unemployment rate fell back to 4.1 per cent.Meanwhile, the “supercore” inflation rate (core services excluding housing) remained stuck well above 2.0 per cent in September. In late 2022, Fed chair Jay Powell said this rate “may be the most important category for understanding the future evolution of core inflation”.So why are several Fed officials saying that they are still committed to additional rate cuts? Apparently, they believe that since inflation has declined significantly since the summer of 2022, they must lower the nominal federal funds rate to keep the real rate from rising and becoming too restrictive. They want it to go down towards their estimate of the real R-star. They fear that if the real rate is allowed to rise, inflation will fall below 2.0 per cent and unemployment might soar. So they are wishing upon an R-star that is a known unknown.The bond market’s reaction to the Fed’s supersized rate cut on September 18 is telling — a strong rise in the 10-year US Treasury yield and the increased inflation premium priced into that as measured by comparison with Treasury inflation-protected securities.That raises yet another question about the relevance of inflation-adjusted R-star. Fed officials intend to lower the federal funds rate because actual inflation has moderated. But their initial move to do so seems to be boosting expected inflation in the bond market. Most economists seem to agree that, in theory, R-star should be adjusted for expected rather than actual inflation.Fed officials seem to have committed to a series of rate cuts to get the federal funds rate down to neutral, wherever that might be. That seems awfully naive given that the next FOMC meeting will occur just after the US presidential elections. The outcome could have a significant impact on R-star. Both presidential candidates favour policies that are likely to widen the federal deficit and have inflationary consequences.Fiscal policy must have some impact on R-star. Yet, Fed officials are acting as though only monetary policy matters. Wishing upon R-star will not fix what is wrong with fiscal policy. Large federal deficits over the past few years helped to explain why the economy did not fall into a recession when the Fed tightened monetary policy. Yet inflation subsided. What if, as a result, nominal and real R-star are much higher than Fed officials believe? If the Fed keeps lowering the federal funds rate, it risks reviving inflation. The message from the bond market is beware of what you wish for when wishing upon an R-star. More

Extreme tariffs proposed by U.S. presidential candidate Donald Trump would interrupt the path of disinflation and could lead to higher interest rates, according to the head of the Institute of International Finance.
Trump has made universal tariffs a core part of his economic pitch to voters, with suggestions of a 20% tariff on all goods from all countries and a higher 60% rate on Chinese imports.
Trump has previously described universal tariffs as drawing a “ring around the country,” and denied they would be inflationary.

Extreme tariffs proposed by U.S. presidential candidate Donald Trump would interrupt the path of disinflation and could lead to higher interest rates, according to the head of the Institute of International Finance.
“The assumption is you’ll have higher inflation, higher interest rates than you would have in the absence of those tariffs,” Tim Adams, president and CEO of the IIF financial services industry trade group, told CNBC’s Karen Tso on Tuesday.

“You can argue, is it one off, or is it over time? It really depends on what retaliation looks like, and is it iterative over time. But no doubt it would be a break on the progress we’re making bringing down prices,” Adams said.
Trump has made universal tariffs a core part of his economic pitch to voters, with suggestions of a 20% tariff on all goods from all countries and a higher 60% rate on Chinese imports. He has also pledged to put a 100% tariff on every car coming across the Mexican border, and to slap any country which acts to “leave the U.S. dollar” with a 100% tariff.

In defense of the plan, Trump told Bloomberg Editor in Chief John Micklethwait in an interview earlier this month: “The higher the tariff, the more likely it is that the company will come into the United States and build a factory in the United States, so it doesn’t have to pay the tariff.”
Trump has previously described universal tariffs as drawing a “ring around the country,” and denied they would be inflationary.

However, analysts have warned that the overall package proposed by Trump, including higher tariffs and curbs on immigration, would place upward pressure on inflation, even if some of the impact could be absorbed in the near-term.
U.S. inflation came in at 2.4% in September, down from a peak of 9% in June 2022 as the world grappled with the impacts of pandemic supply chain disruption and vast fiscal stimulus. The Federal Reserve kicked off interest rate cuts in September with an aggressive half percentage point reduction, despite concerns about the onward path of disinflation.

The potential return of a Trump U.S. presidency comes at a time of increasing trade fragmentation around the world. The European Union earlier this month voted to place higher tariffs on China-made battery electric vehicles, alleging carmakers there benefit “heavily from unfair subsidies.”
The IIF’s Adams told CNBC that both Trump and his Democrat opponent Kamala Harris were running as “change candidates” rather than pledging continuity.
“The concern about Trump is that he’s anti-internationalist, doesn’t care about transatlantic relations, and will be more focused on isolationism and protectionism. Some of them may be a little overdone, but there’s certainly elements of that,” Adams said.
“There’s no doubt that Vice President Harris will be much more engaged with the global community, much more interested in international organizations.”
CNBC has contacted the Trump campaign for comment.
— CNBC’s Rebecca Picciotto contributed to this story. More