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PepsiCo is taking a hard look at the cannabis industry as other beverage makers explore the market.

“I think we’ll look at it critically, but I’m not prepared to share any plans that we may have in the space right now,” Chief Financial Officer Hugh Johnston told Jim Cramer and Sara Eisen on CNBC’s Squawk on the Street on Tuesday.

Cannabis, which is federally illegal in the U.S., but legal in some states and in Canada, has attracted increasing attention from food and beverage companies as either an opportunity for future growth, or conversely, a threat to their brands.

Corona beer maker Constellation this summer announced an additional $4 billion stake in Canadian cannabis company Canopy Growth, following up on a previous investment in October.

Coca-Cola last month said it is “closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages,” after reports surfaced it may be eyeing the cannabis-infused drink market.

The CBD is derived from the marijuana plant that some people believe provides therapeutic relief. It does not include THC, which is what gives cannabis-users a “high.”

Shares of cannabis stocks Tilray and Aurora, were lower on Tuesday as some traders were possibly expecting a more enthusiastic endorsement of the industry from PepsiCo.

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This chart shows why everyone on Wall Street is so worried about the yield curve

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Wall Street’s top rated economist Ed Hyman just called the yield-curve inversion “the number one” market risk, and this chart shows why.

Going back to 1986, when the yield curve turned flatter drastically and eventually inverted, the S&P 500 tends to go into a downward spiral within the next 12 months, according to The Leuthold Group.

Take 2004 when the yield spread started falling from its highs. The flattening didn’t get the market’s attention until about 2006 when the curve inverted, and the recession hit exactly a year later.

There’s “a positive relationship between the yield curve and the S&P 500’s next 12-month returns,” said Chun Wang, Leuthold’s senior analyst and portfolio manager, in a note. “Recession or not, a flatter curve generally bodes ill for future stock market performance. The current trend in the yield curve is likely to cap the upside for stocks in the next 12 months.”

Keep in mind that Wang tested the spread between the 10-year and 2-year Treasury yields, not the 3-month and 10-year yield curve that’s currently inverted. Yield-curve inversion has been a reliable recession signal closely watched by experts and the Federal Reserve.

The shape of the curve is exuding a bad omen for the stock market if history is any guide. The yield on the 10-year Treasury hit a 20-month low last week as the escalated trade battles triggered a broad flight to safety. The low benchmark rate has flattened the 2-year/10-year yield curve to only about 23 basis points on Friday. In December, the spread hit the lowest level since the financial crisis during a massive sell-off. Yet despite the flattening, the S&P 500 is still up 15% this year.

Troublesome banks

The other overlooked element of the yield curve is that it’s now the dominant driver for an important group of stocks: banks, the analyst pointed out.

Bank stocks have significantly lagged the overall market regardless of interest rates’ ebbs and flows since the start of 2018 and they moved almost in tandem with the flattening yield curve, Wang said.

“The market is much more worried about the curve than the rate level…bank stocks are basically a proxy for whatever equity investors are most worried about in the bond market,” Wang said. If the spread between 10-year and 2-year yield dips into negative territory, “the implication for bank stocks is quite troubling,” he added.

Bank stocks have underperformed recently as the chance of rate cuts soared amid fears of an economic slowdown and ongoing trade war. Lower interest rates could wreck large-cap bank earnings by as much as 10%. The SPDR S&P Bank ETF has fallen 2.8% in the past month and 4.8% in the last three months, while the S&P 500 gained 1.7% and 2.6% in those periods.

“An escalation of trade war without offsetting rate cuts, a much stronger dollar, and flatter foreign-yield curves could all provide the final push into full inversion. We recommend watching bank stocks closely, given the special role they take right now,” Wang said.

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Three reasons why the Fed won’t cut rates at its June meeting

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Federal Reserve Chairman Jerome Powell holds a press conference following a two day Federal Open Market Committee policy meeting in Washington, January 30, 2019.

Leah Millis | Reuters

With pretty much everyone convinced that the Fed is going to be cutting interest rates at some point this year, the central bank faces one rather pressing question: Why wait?

After all, the market already is pricing in at least reductions this year and probably three. Though the Federal Open Market Committee meets next week, there is little expectation of a move then.

Not moving next week essentially comes down to three factors, according to Fed watchers: The looming G-20 summit at which the U.S. and China, at least theoretically, could reach a trade agreement; a desire not to be seen as overly influenced by the financial markets and President Donald Trump’s hectoring; and the desire to avoid making December’s rate hike look like a policy mistake.

“They don’t want to be seen as cowing to any sort of pressure, be it political from the White House or from the market,” said Lindsey Piegza, chief economist at Stifel. “The Fed is going to look at the data, they’re going to look at what their models say. To them, it doesn’t matter what the markets say.”

‘No cuts this year is hard to believe’

Wall Street, though, is clamoring for a cut.

Futures pricing Friday afternoon in the fed funds market showed a 21% chance of a move at the June 18-19 meeting, down from 30% earlier in the day on some stronger-than-expected economic data. The chance of a July cut remained at 85%, while the market was figuring a 61% probability for three moves in total by the end of the year.

As things stand currently among Chairman Jerome Powell and his fellow Fed officials, no moves are indicated. That is likely to change when FOMC members submit their economic projections at the June 18-19 meeting, which include the “dot plot” of individual members’ expectations of where rates are headed over the next few years.

“I can’t imagine what they are going to do with the dots,” Jeffrey Gundlach, founder of DoubleLine Capital, said in a webcast Thursday. He noted the “big divergence” between the market and Fed projections and said, “No cuts this year is hard to believe.”

In May, Gundlach recommended a straddle options trade that benefited from wide fluctuations in interest rates. The trade recently had netted a 22% gain.

Fed officials have been under intense pressure from more than the markets. Trump has been a continuous nemesis to the central bank, most recently repeating his demand for lower rates and saying he’s “not happy with what [Powell has] done” as Fed chair.

Along the same lines, the Fed has its credibility to worry about.

Trump and a growing number of market participants view the December rate hike — the fourth of the year — as a policy mistake that came amid several pivots and missteps that caused Powell and other officials to change their public statements to assuage investors’ nerves.

‘A verbal intervention’

From October to March, the Fed went from being “a long way from neutral” on rates and with a balance sheet reduction on “autopilot,” both in Powell’s words, to adopting a “patient” stance on policy and finally laying out a timetable to end the balance sheet program by September. Officials also cut the forecast level of rate hikes from two to zero, and now are in the position of having to convey a likelihood of cuts, if that is the way the FOMC members see things unfolding.

“It’s a difficult transition for the Fed now from two rate hikes this year to the pause and now moving closer and closer to rate cuts,” said Quincy Krosby, chief market strategist at Prudential Financial.

Krosby points to two pivotal events recently that signaled yet another change in policy — remarks from Powell and Vice Chairman Richard Clarida earlier in June that set the groundwork for potential cuts. In Powell’s case, it was a pledge to “act as appropriate to sustain the expansion” while for Clarida it was a vow to adapt policy to keep the economy “in a good place.”

“You can’t dismiss the comments from Powell and Clarida. That was orchestrated. They were laying the groundwork. That’s what the Fed does,” Krosby said. “It came across as verbal intervention and they didn’t even have to do anything. The market reacted.”

Indeed, stocks have been on a solid run lately, with the Dow Jones Industrial Average up more than 5% in June after a brutal May. That equity strength gives the Fed another pillar to rest on if it chooses not to cut this month, though that hasn’t always been enough to stop easing in the past.

But if the market strength holds up and the U.S. and China come to a trade agreement, it at least could lower the level of expectations for cuts.

Tom Porcelli, chief U.S. economist at RBC, said a client survey showed that if a trade deal gets one, 85% of clients “would not react negatively to the Fed taking a pass” on a July rate cut.

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Vladimir Putin muscles into Africa, which is bad news for US interests

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Russian leader Vladimir Putin recently bought himself into an African country for a relative pittance, working through Yevgeny Prigozhin, his favorite contractor for such special projects, which have ranged from attempting to tip U.S. elections to saving Syria’s dictator.

With that partner, Putin won an insider’s influence over the strategically placed Central African Republic, or CAR, and priority access to its oil, diamonds, gold and uranium resources. At least that’s how one U.S. government official, with years of experience tracking such matters, explains this bargain basement price of geopolitical cunning.

The story goes that President Faustin-Archange Touadera, though elected fairly in 2016, was struggling to exert control over much of the nation’s territory. Soldiers from a United Nations peacekeeping mission were working to stabilize the country amid clashes between rival militias, but inadequately.

That’s when Prigozhin, nicknamed “Putin’s chef” for his catering business, stepped forward with money, training, paramilitary support and other survival help. (That’s the same Prigozhin indicted by Robert Mueller for funding a social media troll factory to influence the 2016 U.S. presidential election.) Russia also provided CAR’s president his national security advisor, Russian intelligence agent Valery Zakahrov, who serves him to this day.

Welcome to our new era of major power competition, which is playing out globally, sometimes quietly and sometimes this colorfully. What the CAR story provides is yet further evidence that America’s autocratic rivals, both Russia and China, are acting with greater operational creativity and strategic purpose than their counterparts – in this case France and the United States.

In the Central African Republic, Washington had discarded this resource-rich country, poised strategically between Africa’s Muslim north and Christian south, as a place of marginal importance. US officials are now scrambling to frame a response.

Ensuring his escalating African efforts aren’t missed, Putin and Egyptian President Abdel Fatah al-Sisi will convene 50 African leaders at the first-ever Russian-African Summit in Sochi this October. Russian Foreign Minister Sergei Lavrov, a frequent traveler to Africa, says its purpose will be to cement “Russia’s active presence in the region. “

When Moscow sees a vacuum in Africa left by Europe or the United States, it increasingly steps in with trade and business agreements, military sales and cooperation, and political and paramilitary support. What it lacks in China’s means it makes up for with muscle. Putin’s efforts sometimes fail: Russia bet on the wrong horse in Sudan and paid handsomely for a nuclear energy contract in South Africa that looks less likely now that Jacob Zuma has left power.

Russia’s successes, however, are more frequent. And both Russia and China see themselves involved in a long game for position and influence on an African continent that by 2050 will have 25% of the world’s working age population and the greatest store of rare earth materials outside of China. What’s more, its 54 countries make up the most important voting bloc in the United Nations, providing both China and Russia the wherewithal to block Western initiatives.

Though the story of China’s increased influence in Africa is well-known, the competing Russian version has only recently gained more attention.

The Guardian this week, reporting from documents leaked to the Mikhail Khodorkovsky funded Dossier Center, reports that Russia is seeking to bolster its presence in at least 13 African countries – having already signed military deals in 20 states – “by building relations with existing rulers, striking military deals, and grooming a new generation of ‘leaders’ and undercover ‘agents.'”

The documents include a map that assesses the level of cooperation between Prigozhin’s “company” and individual African countries, scoring them at between one to five points on matters of cooperation that include military, political, economic, police training, media and humanitarian projects.

This Russian activity hasn’t gone without notice in Washington. Last December, national security advisor John Bolton, in a speech to the Heritage Foundation, laid out what he called “the Trump administration’s new Africa strategy.”

“In short,” said Bolton, “the predatory practices pursued by China and Russia stunt economic growth in Africa; threaten the financial independence of African nations; inhibit opportunities for U.S. investment; interfere with U.S. military operations and pose a significant threat to U.S. national security interests.”

He outlined a three-part response, which included advancing trade and commercial ties, countering radical Islamist terrorism and violent conflict, and ensuring U.S. aid dollars are more effectively deployed.

The United States, however, is playing catch-up and lacks not only the bandwidth but also the focus. It also hasn’t yet fully absorbed the requirements of this new, global struggle for influence, one where the costs of losing may not be apparent until it’s become a fait accompli.

One of the earliest experts to spot this Russian shift of attention to Africa was J. Peter Pham, director of the Atlantic Council’s Africa Center. Pham isn’t ready to predict a return to the Cold War’s zero-sum competition in Africa, but he does believe the United States and Europe “no longer can ignore Moscow’s resurgent interest” and its reconstituting of a strategic web of access.

The Washington-based Institute for the Study of War tracks several lines of Russian effort: military basing, security cooperation, capturing the emerging nuclear energy market, gaining access to natural resources, leveraging private military contractors and growing agricultural export markets for its wheat.

One of the most telling recent efforts, reported in a BBC documentary earlier this year, involved a Russian campaign to influence presidential elections in Madagascar. According to the BBC, the Russians worked with six of the 35 presidential candidates. Candidates who received Russian money told the BBC they were instructed to back off and support the front-runner, who Russia was also backing, when it became apparent he would win.

Yet tracking these sorts of Russian activities in Africa can be a perilous game. Last July, three Russian journalists investigating Prigozhin’s paramilitary involvement in CAR were shot dead outside the capital city.

Russia’s price for acquiring influence in the Central African Republic might have been a small one. The price for the United States and Africans alike of neglecting this Russian shift may be far higher.

Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.



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