Economy

Cruise operators are now reaping the rewards as travelers gravitate to cruise vacations that offer a range of fun activities under one roof and are cheaper compared to taking a land-based holiday.This has given them the ability to further hike itinerary prices, especially in North America and Europe, as occupancy levels now approach pre-pandemic levels. The cruise company said occupancy in the third quarter was 109.7%, up from 105% reported in the second quarter. Royal Caribbean (NYSE:RCL) expects annual adjusted profit between $6.58 and $6.63 per share, compared with its earlier forecast of $6.00 to $6.20.However, shares of Royal Caribbean reversed course to be down marginally in volatile premarket trade after the company said its full-year earnings per share would take an 18-cent hit from higher fuel prices and a stronger dollar.The Miami, Florida-based company also said the ongoing military conflict in the Middle East is also expected to hit its annual profit by 3 cents.Peer Carnival (NYSE:CCL) in September narrowed its annual loss forecast and posted a third-quarter profit after reporting a loss a year earlier, but investors showed deep concerns around steeper fuel costs. Rival Norwegian Cruise Line (NYSE:NCLH) reports third-quarter results on Nov. 1. Royal Caribbean’s quarterly total revenue rose 39% to $4.16 billion, compared with estimates of $4.08 billion, according to LSEG data.The company also expects an adjusted profit between $1.05 and $1.10 per share in the fourth quarter, compared with analysts’ expectations of $1 per share.On an adjusted basis, the company earned $3.86 per share, compared with estimates of $3.46. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The European Central Bank has kept interest rates unchanged, bringing an end to its unprecedented streak of 10 consecutive increases in borrowing costs. The decision, which was announced after ECB rate-setters gathered in Athens for their annual meeting outside of the bank’s Frankfurt headquarters, was expected by analysts after eurozone inflation more than halved from its peak and the economy showed signs of weakening. The benchmark deposit rate is now 4 per cent — four-and-a-half percentage points above its all-time low of minus 0.5 per cent. The ECB’s pause follows the Bank of Canada’s decision to hold its main interest rate at 5 per cent yesterday, and comes ahead of expected holds by the US Federal Reserve and Bank of England next week.The decisions underline how major central banks appear to judge they are close to having done enough to tame inflation.Rate-setters must now assess how long rates need to stay high to return inflation to their targets of 2 per cent. In the eurozone, meanwhile, concerns over the weakness of the economy are mounting, with analysts expecting GDP figures for the third quarter, out next week, to show a contraction in output. The ECB said in its statement that inflation was “expected to stay too high for too long, and domestic price pressures remain strong”, but it added that the impact of its earlier rate rises was “dampening demand and thereby helps push down inflation”.ECB president Christine Lagarde, who is now holding a press conference, is expected to face questions on what the conflict between Israel and Hamas could mean for energy prices and whether the eurozone economy may contract in the second half of this year.Oil prices remain slightly below where they were at the last ECB meeting six weeks ago, despite fears war could spread through the Middle East. However, European natural gas prices have climbed about a third in that time amid worries about supply disruptions.Eurozone inflation has dropped from a peak of 10.6 per cent a year ago to 4.3 per cent in September. Some economists think it could fall close to 3 per cent when October price data is published on Tuesday.The ECB said keeping rates at their current level “for a sufficiently long duration will make a substantial contribution” to achieving its inflation target. It added that “rates will be set at sufficiently restrictive levels for as long as necessary”.The eurozone economy has achieved at best tepid growth for the past three quarters, as higher borrowing costs have squeezed activity. Economists have been cutting their forecasts for the remaining two quarters of the year and warning of a potential recession after this week’s survey of purchasing managers and data on bank lending pointed to a sharper contraction than anticipated.The weakness in the economy is expected to put more strain on the hitherto resilient labour market and add downward pressure to prices.“The bar for resumed hiking appears relatively high,” said Paul Hollingsworth, chief economist for Europe at French bank BNP Paribas, adding that growth and inflation in the eurozone were “on track to be in line with, if not weaker than” the ECB’s own projections. The ECB expects no growth in the third quarter, with inflation averaging 5 per cent. Financial markets largely brushed off the pause, with stock markets stuck in negative territory and government bond yields stable.The region-wide Stoxx Europe 600 remained 0.8 per cent lower in early afternoon trade, with France’s Cac 40 and Germany’s Dax stuck 0.7 per cent and 1.3 per cent lower on the day. The yield on 10-year German Bunds fell 0.01 percentage points to 2.87 per cent, while the yield on Italy’s 10-year bond was down 0.02 percentage points at 4.89 per cent. The euro barely budged against the dollar, down 0.3 per cent.Additional reporting by George Steer More

ATHENS (Reuters) -The European Central Bank left interest rates unchanged as expected on Thursday, snapping an unprecedented streak of 10 consecutive rate hikes, and maintained its guidance which signals steady policy ahead.The ECB has lifted rates by a combined 4.5 percentage points since July 2022 to combat runaway price growth but hinted last month that it would pause as record high borrowing costs are starting to work their way through the economy. Price pressures are finally easing and inflation has more than halved in a year while the economy has slowed so much that a recession may already be under way, boosting market bets that rate hikes are finished and the ECB’s next move will be a cut.Looking to keep all of its options open, the ECB said it would follow a “data-dependent” approach and decisions would be based on incoming data. “The key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to (the inflation) goal,” the bank said in a statement after meeting in Athens for the first time in 15 years. “Future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” the ECB said.The decision to keep rates unchanged is likely to reinforce expectations that the world’s biggest central banks, including the U.S. Federal Reserve, are essentially done tightening policy, ending an unprecedented series of synchronized rate hikes. That is likely to shift market focus to just how long rates need to stay at their current highs, a tricky exercise as investors are already betting on the next ECB move to be a cut as soon as June, with two full moves priced in by next October, a timeline some policymakers consider unrealistic.Another complication is that rising energy costs, given a boost by the new conflict in the Middle East, could keep inflation under pressure just as growth falters. That would herald a damaging period of stagflation, where inflation is high while growth stagnates. The outlook for the economy appears to be increasingly precarious, putting a so-called “soft landing” in jeopardy.Industry is in recession, sentiment indicators are pointing south, consumption is muted and even the labour market has started to soften, all suggesting a contraction in the second half of 2023. With Thursday’s decision, the ECB’s deposit rate stays at a record high 4% while the main rate stands at 4.5%.BOND PORTFOLIO REDUCTION? Attention will now turn to ECB President Christine Lagarde’s 1245 GMT news conference. She is likely to asked whether policymakers discussed an early reduction of bond holdings in the bank’s 1.7 trillion euro ($1.8 trillion) Pandemic Emergency Purchase Programme.The wording of the ECB’s statement on PEPP remained unchanged and the bank repeated its promise to reinvest all proceeds from maturing debt through the end of 2024.However, some policymakers have publicly said that such a commitment is excessively long and the bank should have another think, given that it is now tightening policy.The complication is that the ECB uses these reinvestments as its “first line of defence” for vulnerable euro zone economies like Italy, because it can adjust its purchases of government bonds to insulate them from undue market volatility.That suggests that any change in the scheme is not imminent and would in any case be gradual. ($1 = 0.9457 euros) More

Gross domestic product expanded at a 4.9 percent annual rate over the summer, powered by prodigious consumer spending. But the pace is not expected to be sustained.The United States economy surged in the third quarter as a strong job market and falling inflation gave consumers the confidence to spend freely on goods and services.Gross domestic product, the primary measure of economic output, grew at a 4.9 percent annualized rate from July through September, the Commerce Department reported Thursday. It was the strongest showing since late 2021, defying predictions of a slowdown prompted by the Federal Reserve’s interest rate increases.The acceleration was made possible in part by slowing inflation, which lifted purchasing power even as wage growth weakened, and a job market that has shown renewed vigor over the past three months.It’s a far cry from the recession that many had forecast at this time last year, before economists realized that Americans had piled up enough savings to power spending as the Fed moved to make borrowing more expensive.“There’s been an enormous increase in wealth since Covid,” said Yelena Shulyatyeva, senior economist for the bank BNP Paribas, referring to recent Fed data that showed median net worth climbed 37 percent from 2019 to 2022. “People still take not just one vacation, not just two, but three and four.”That level of spending in turn fueled robust job growth in service industries like hotels and restaurants even as sectors that benefited from pandemic shopping trends, like transportation and warehousing, returned to more normal levels. And with layoffs still near record lows, workers have little reason to hold off on making purchases, even if it means using a credit card — an increasingly pricey option as interest rates drift higher.One beneficiary of those open pocketbooks is Amanda McClements, who owns a home goods store in Washington, D.C., called Salt & Sundry. Sales are up about 15 percent from last year and have finally eclipsed 2019 levels.“People can’t get enough candles; that continues to be our top seller,” Ms. McClements said. They are also “entertaining more post-pandemic, so we do really well in glassware, tableware, beautiful linens.”Ms. McClements said business hadn’t been uniformly strong, though: Her plant store, Little Leaf, never snapped back from the depths of the pandemic, and it closed this year. “We’ve been experiencing a really uneven recovery,” she said.Although consumers propelled the bulk of the economy’s growth in the third quarter, other factors contributed as well. Residential investment, for example, provided a boost even in the face of higher interest rates: Those who already own homes have little incentive to sell, so newly constructed homes are the only ones on the market.“The third quarter would be that sweet spot where higher mortgage rates kept people in place, builders capitalized on the lack of existing supply, and that showed up as an improvement from prior quarters,” said Bernard Yaros, lead U.S. economist at Oxford Economics.The rebound in growth will probably be brief. Pitfalls loom in the fourth quarter, including the depletion of savings, the resumption of mandatory student loan payments and the need to refinance maturing corporate debt at higher rates.But for now, the United States is outperforming other large economies, in part because of its aggressive fiscal response to the pandemic and in part because it has been more insulated from impact of the Ukraine war on energy prices.“We’re talking about the eurozone and U.K. certainly looking like being on the cusp of recession, if not already in recession,” said Andrew Hunter, deputy U.S. economist for Capital Economics, an analysis firm. “The U.S. is still the global outlier.”Jeanna Smialek More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Turkey has raised interest rates for the fifth time since June as the country steps up its battle against inflation and the threat of escalating conflict in the Middle East poses a fresh challenge to policymakers. The central bank on Thursday increased the benchmark one-week repo rate by 5 percentage points to 35 per cent, matching the expectation of economists in a Reuters poll.The big rate rise is the latest sign of how Turkey has sharply pivoted its economic policy since President Recep Tayyip Erdoğan was re-elected in May. Central bank chief Hafize Gaye Erkan has vowed since her appointment in June to tighten monetary policy as much as is necessary to cool inflation, which is running at more than 60 per cent. “Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in inflation outlook is achieved,” the central bank said, as it warned that “geopolitical developments pose risks to the inflation outlook” if they led to higher oil prices.The price of international crude benchmark Brent has jumped nearly 20 per cent to $88 a barrel since the start of June. Production and export cuts by Saudi Arabia and Russia have partly driven the rally. But analysts also fear that any broadening of the Israel-Hamas war into a wider regional conflict will send prices even higher. Turkey imports the bulk of its energy and, in addition to boosting inflation, higher oil prices will make it more difficult for the government to achieve its goal of narrowing the country’s massive current account deficit. “The central bank’s policy tightening and its recent communications have helped to rebuild its credibility and generate confidence that it is taking a more serious stance against inflation,” said Liam Peach, senior emerging markets economist analyst at Capital Economics.Erkan’s central bank has more than quadrupled the one-week repo rate since June in an attempt to rein in inflation, which has been fuelled both by overheating domestic demand and elevated energy prices. The higher-rate policy marks a stark contrast to Erdoğan’s long-held insistence that borrowing costs should be kept at low levels despite a prolonged period of high inflation. Erdoğan in September publicly embraced tight monetary policy, something that has helped to ease scepticism that the Turkish president will change course ahead of next year’s local elections in which his Justice and Development party will attempt to take back control of the country’s biggest city, Istanbul. A central bank poll before Thursday’s rate decision showed Turkish investors and business leaders expected the one-week repo rate to be 39 per cent a year from now, highlighting how the local business community is braced for a long period of high borrowing costs. Higher rates are part of a broader economic overhaul that is being led by finance minister Mehmet Şimşek, who was appointed in June. The government has boosted taxes, taken a series of actions to slow consumer and commercial lending growth and allowed the lira to fluctuate more freely after curtailing a costly programme to prop it up. Foreign investors, who fled Turkey after years of unorthodox economic policies, have broadly taken an upbeat view on the new programme even if they remain sceptical about how much leeway policymakers will have ahead of next year’s municipal elections. Investors are also paying keen attention to Erdoğan’s response to the Israel-Hamas conflict. The Turkish president has stepped up his rhetoric against the Jewish state and its western allies in recent days. Turkish stocks fell sharply on Wednesday after he said Hamas, whose militants killed at least 1,400 people in its October 7 attack on Israel, was not a terrorist organisation but rather a “group for liberation”.Helping to counterbalance those concerns was Erdoğan’s decision this week to send Sweden’s request for accession to Nato to Turkey’s parliament. The US and Europe have both been pushing Ankara to ratify Sweden’s accession into the military alliance. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Zambia has reached a deal for relief on nearly $4bn owed to private bondholders, raising hopes that a protracted debt restructuring by Africa’s second-largest copper producer is nearing its end.A committee of bondholders agreed to extend maturities and slash interest payments on terms matching recent breakthrough deals with China, Zambia’s biggest lender, and other official creditors, the southern African nation’s finance ministry said on Thursday.President Hakainde Hichilema’s government has suffered a long delay in restructuring $13bn in external debt, including $3bn of foreign currency bonds, since a 2020 default under his predecessor. Chinese and other official creditors failed for years to agree on where losses would fall, meaning Zambia’s restructuring was widely seen as a precedent for other developing countries that had borrowed heavily from Beijing. The process has also been viewed as a test case for a G20 “common framework” for sovereign debt restructuring.The agreement with bondholders comes after Zambia formalised deals to rework $6.3bn of official debts earlier this month, allowing the country to proceed with a $1.3bn IMF bailout. Both agreements provide upfront relief but have also been made possible by a promise to repay more debt if Zambia’s economy fares better than expected in the next few years. This will be based on exports and tax revenue data and an IMF assessment of how much debt Zambia can sustain.The deal “brings us closer to the completion of Zambia’s debt restructuring, which will release significant resources for our developmental agenda”, said Situmbeko Musokotwane, Zambia’s finance minister. The bondholder deal will now need to proceed to an offer to exchange old bonds for newly issued debt. “We hope for the swift implementation of this agreement in principle by the end of the year,” Musokotwane said. Asset managers represented on the bondholder committee include Amundi, Greylock Capital Management and RBC BlueBay.The deal will reduce the face value of the bonds by 18 per cent. Bondholders have gone beyond official creditors and agreed to directly write off $700mn of their claims, which have grown to $3.8bn as post-default interest on bonds originally due in 2022, 2024 and 2027 piled up.Chinese creditors have avoided face value cuts on their Zambian loans. Zambia’s finance ministry said that the cut to overall future cash flows on the private bonds will be “significant”, but has not disclosed precise terms.The scale of debt relief will depend on whether better economic performance for Zambia in the next three years triggers higher payments on a third of the new restructured bonds. These will either mature in 2035, or not be paid back until 2053 if Zambia misses IMF targets.“The proposal represents an innovative and sustainable solution that we hope will set a positive precedent for future sovereign restructurings under the Common Framework,” the bondholder committee said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A mere three years after it defaulted, Zambia has finally struck a restructuring agreement with its bondholders. Which is great, but the saga doesn’t exactly bode well for other distressed countries.From the external creditor group representing the $750mn 2022 bond, the $1bn 2024 bond and the $1.25bn 2027 bond:The proposed agreement will provide the Government with significant cash flow and debt stock relief to support a restoration of macro-economic and debt sustainability in the context of the IMF-financed programme and cure the long-standing default on the Eurobonds. The proposed restructuring terms provide both substantial up-front debt relief and future relief commensurate with Zambia’s economic progress in the next few years, with enhanced repayment terms and higher coupons on one of the two new Eurobonds to be issued in the event that Zambia’s debt carrying capacity, as assessed by the IMF and World Bank’s Composite Indicator, moves to medium from weak or Zambia continues to meet or exceed current IMF projections as measured by exports of goods and services and fiscal revenues measured in US Dollars.The creditor statement was light on detail but Zambia’s finance ministry has pinged the LSE with its own statement, which puts the nominal haircut at $700mn, the new average maturity at 15 years and the overall cash flow relief at $2.5bn over the course of the country’s current IMF programme. As expected the restructured bonds include will some sweeteners in case Zambia recovers strongly — the “enhanced repayment terms” creditors referenced above — in the form of faster repayment and higher interest rates. This is in line with what it promised its thorny Chinese creditors earlier this year. But while that is contingent on the IMF upgrading its assessment of Zambia’s “debt-carrying capacity” at the end of its programme, Zambia stressed in its release today that it:. . . acknowledges that a one-time validation test based on the debt carrying capacity assessment by the IMF and the World Bank to determine whether the Upside Case Treatment would apply may not form the basis of a marketable instrument. To ensure liquidity and adequate market pricing of the New Bonds, the agreement in principle entails a dual trigger mechanism.Another separate Zambian finance ministry document lays out the details of this dual trigger. 1) Zambia’s Composite Indicator meets or exceeds a score of 2.69 for two consecutive semi-annual reviews, paving the way for an upgrade to medium debt-carrying capacity. 2) The 3-year rolling average of the USD exports and the USD equivalent of fiscal revenues (before taking into consideration grants) exceeds the IMF’s projections as laid out in the First Review of the IMF’s Extended Credit Facility Arrangement released in July 2023.2 The “Composite Indicator” is an IMF thing, and you can find out more about that here.Anyway, this is obviously good news. But taking a step back it’s hard not to worry about what the length and complexity of this debt workout implies for the many other countries that are already up the creek or paddling towards it. And the Zambian situation really does hammer home the point that the IMF and others have made for ages: countries restructure far too late, and even when they do the debt relief they eventually secure is often too little to secure a durable recovery. As leading sovereign debt lawyer Lee Buchheit once told Alphaville:The common perception is that emerging market sovereigns are looking for an excuse to default on their debt, and, in fact, probably exactly the opposite [is true]. They delay it far beyond the point that anyone would think the situation is reversible. It is a testament to the belief in the efficacy of prayer.Further reading:— Ten lessons from Zambia’s (incomplete) restructuring  More