FT : Can copper be a long-term investment?

Can copper be a long-term investment?

In the middle of September last year Unhedged wrote about copper. The argument was that the green transition — if it actually takes place — will require a lot of copper for electric vehicles and new power grids, and the outlook for new copper supply does not look deep enough to meet what is needed. Believers in the transition should therefore have exposure to rising copper prices.

Our column made us feel clever. The price of copper rose by more than 25 per cent between September and May, and the stock price of Freeport-McMoRan, the leading copper miner, rose 40 per cent. But, like so many things that make journalists feel clever, the trend did not last. Since the May peak, the price of copper has retraced almost all of its gains.


As FT colleagues wrote last week:

Flagging Chinese demand [have prompted] fund managers to cut around $41bn of bullish bets on natural resources.

The sell-off in copper . . . has been particularly stark — it is down close to 20 per cent from its record high in May above $11,000 per tonne . . . Traders’ bullish positions — net of bearish bets — on commodities have dropped 31 per cent, or $41bn, from a late May peak of $132bn to July 30, according to data from JPMorgan . . .

Much of the copper bought by China in the first half of this year ended up being stockpiled, rather than used.

Manufacturing industries are in contraction worldwide. China’s housing market has not recovered as hoped. And copper’s AI narrative — the idea that data centres will require lots of it — may have been overblown.

Meanwhile, the long-term case for copper is unchanged. All we have learned is that price volatility and carrying costs make that case very hard to invest in. Jeff Currie, a commodities strategist at Carlyle and former Goldman Sachs commodities chief, thinks another copper supercycle is coming. But, as he argued in a recent note, a change in the structure of the market has made it harder than ever to bet on:

What makes this time different from the previous cycle in the 2000s is the reduced capacity for the market to hold long-term risk on behalf of these industries, which means the investment in commodities to meet this rise in investment demand will need to wait longer until the environment is far more certain.

Post financial crisis capital rules radically reduced the amount of capital that banks would risk in commodity futures markets, making those markets thinner and less reflective of fundamentals. Furthermore, the macro hedge funds that played a big role in commodities markets 10 or 20 years ago have been replaced by algorithmic traders, momentum chasers and “pod” funds with low risk limits. The price impact of supply/demand imbalances are therefore not felt until the imbalances have actually arrived. As Marcus Garvey, Macquarie’s head of metals, told Unhedged: “We have to accept that commodity markets are in a sense still spot markets. They are not really discounting the future.”

For copper investors who are willing to bear the volatility of a myopic market while waiting for the green transition trade to pay off, owning mining equities is the only viable trade. It is the only one with a positive carry. But one wishes that carry were higher: Freeport’s dividend yield is under 2 per cent and its free cash flow yield is less than 3 per cent. Other miners offer better yields, but are higher-cost copper producers or have more exposure to other metals. One consoling thought: the market may well offer more appealing points of entry to the copper trade if the economic slowdown gets worse. 

FT : The carry trade reconsidered

The carry trade reconsidered

Everyone loves a simple phrase that covers a complex phenomenon — even more so if it sounds a bit sophisticated. Enter “the carry trade”, or, even better, “the unwinding of the carry trade”, which have been rolled out as an explanation for all sorts of market chaos in the past week or so.

We’ve written that we see no evidence that the volatility in US equities, in particular, results from the carry trade. It seems more likely that causality runs in the other direction. After talking to people who understand currency markets and Japanese finance better than we do, we still think this.

Defined most loosely, a carry trade is just using capital from low interest rate countries to buy high-yielding assets elsewhere. This covers all the Japanese institutions and households who have used a cheap yen to invest abroad. Some of this flow may reverse if Japan’s rate differential with the rest of the world continues to close. But that is not what is happening now. Here is James Malcolm at UBS:

Japanese outflows have been largely in the form of foreign direct investment . . . [after the Bank of Japan raised rates] they did not fundamentally alter their risk appetite — Toyota is not closing its factories. They are investing abroad for growth and access to labour. And Japanese [institutional] investors are similar. When they buy foreign equities, it is for earnings growth and diversification. They may have sold off some foreign AI holdings, but it is unlikely that they will start to repatriate in a big way. And Japanese retail investors in particular have few assets offshore.

Defined more narrowly, the yen carry trade is currency desks and hedge funds borrowing yen to invest in other higher-yielding currencies or fixed income products. Malcolm at UBS estimates that since 2011 there has been a cumulative $500bn in dollar-yen carry trades. And the leap in the yen and fall in higher-yielding currencies suggests that the dollar-yen carry trade and some of these other yen carry trades really did unwind:



These trades tend to blow up for two reasons. First, when there is a change in interest rate differentials which make the trade unprofitable. There has been a slow walk away from yen carry trades since March, when the BoJ raised rates out of negative territory. A rush for the exits based solely on the BoJ’s 15 basis point increase last Wednesday seems quite odd.

The second type of trigger is a volatility shock. From Mark Farrington, global macro adviser at Farrington Consulting:

[A volatility event] pushes [traders] to downsize their FX carry positions . . . inputs to the risk management model will be generalised volatility indicators, not necessarily only FX volatility. Large losses in your US equity trades that are dollar funded can still force risk adjustment in your yen funded trades, and vice versa.

So the equity sell-off could have triggered the unwinding of the carry trade, not the other way around. And the timing suggests this is what happened. The equity sell-off did not start in earnest until Friday of last week — two days after the BoJ raised rates, or after currency traders had time to digest the news.

Markets being markets, after the equity sell-off triggered the unwinding of the yen carry trade, the carry trade unwind could have then exacerbated the equity sell off — especially since everyone kept shouting “carry trade!”. But they are separate phenomena, and while the yen carry trade (narrowly defined) seems likely to continue unwinding, that alone does not necessarily imply that global equities must remain under pressure.

>>> Europe : Brokers Upgrades & Downgrades - 8th of August 2024 V2(+)

>>> Up
* Ageas Raised to Buy at HSBC; PT 50.50 euros
* Aallon Group Raised to Buy at Inderes; PT 10 euros
* Boreo Raised to Accumulate at Inderes; PT 20 euros
* Continental Raised to Buy at DZ Bank; PT 70 euros
* HubSpot Raised to Sector Weight at KeyBanc
* Maersk Raised to Buy at SEB Equities; PT 12,600 kroner
* Mears Raised to Add at Peel Hunt; PT 380 pence (+)
* Rational PT Raised to 1,000 euros at Bankhaus Metzler (+)
* Sampo Raised to Buy at SEB Equities; PT 44 euros
* Swiss Prime Raised to Buy at Bank Vontobel; PT 105 Swiss francs

>>> Down
* Biohit Cut to Accumulate at Inderes; PT 2.70 euros (+)
* BP Cut to Hold at HSBC; PT 490 pence
* De Nora Cut to Hold at Jefferies; PT 11 euros
* Disney Cut to Neutral at Seaport Global Securities
* Evotec Cut to Sell at Deutsche Bank With Street-Low €4 Target (+)
* Norwegian Air Cut to Sell at SpareBank; PT 9 kroner
* SBB Cut to Hold at Arctic Securities; PT 7.20 kronor
* SolarEdge PT Cut to $35 from $50 at TD Cowen (+)

>>> Initiation
* Apple Rated New Outperform at CICC; PT $250.20
* Engie Rated New Buy at Jefferies; PT 19 euros
* Glencore Reinstated Buy at Citi; PT 530 pence
* Northern Data Rated New Buy at Baader Helvea; PT 36 euros
* ON Semi Rated New Add at Great Wall Securities
* TRESTATE GA Rated New Hold at Wood & Company; PT 1.70 euros

>>> Call
* Brand Campaigns Strengthen AliExpress Exposure in Europe: Citi
* De Nora Downgraded at Jefferies on Limited Growth Visibility
* Engie a Compelling Renewables Play, Rated New Buy at Jefferies
* Glencore Reinstated Buy at Citi on Strong Coking Coal Outlook

>>> Stoxx 600 Pre-Market Indications

  • Siemens (SIE TH) +2.4%
    • Siemens 3Q Industrial Business Profit Beats Estimates
  • AIB Group (A5G TH) +2%
  • Entain (6GI TH) +1.7%
    • Entain Sees FY Adjusted Ebitda GBP1.04B to GBP1.09B (1)
  • Legal & General (LGI TH) +1.7%
  • Allianz (ALV TH) +1.6%
    • Allianz Profit Rises on Insurance Business as Pimco Sees Inflows
  • Freenet (FNTN TH) +1.1%
    • Freenet 1H Ebitda EU252.2M Vs. EU255.2M Y/y
  • Deutsche Telekom (DTE TH) +0.8%
    • Deutsche Telekom Improves Profitability Buoyed by US Growth
  • Delivery Hero (DHER TH) -1.3%
  • Rheinmetall (RHM TH) -1.3%
    • Rheinmetall 1H Weapon and Ammunition Sales Beats Estimates
  • UniCredit (CRIN TH) -1.4%
  • Puma (PUM TH) -1.4%
    • The S&P Always Looks Good Next to European Stocks: Chris Hughes
  • Siemens Energy (ENR TH) -1.6%
  • Frontline PLC (HF6 TH) -1.7%
  • Infineon (IFX TH) -1.8%
    • Infineon’s $8 Billion Plant to Boost Malaysian Chip Ambitions
  • Zalando (ZAL TH) -1.8%
  • Rational (RAA TH) -2.3%
    • Rational PT Raised to 1,000 euros at Bankhaus Metzler
  • ASML (ASME TH) -2.3%

>>> TradeGate Pre-Market Indications

DAX:
  • Siemens (SIE TH) +3.2%
    • Siemens 3Q Industrial Business Profit Beats Estimates
  • Allianz (ALV TH) +1.7%
    • Allianz Profit Rises on Insurance Business as Pimco Sees Inflows
  • Deutsche Telekom (DTE TH) +0.9%
    • Deutsche Telekom Improves Profitability Buoyed by US Growth
  • Munich Re (MUV2 TH) +0.8%
    • Munich Re 2Q Net Income Beats Estimates
  • Vonovia (VNA TH) -0.8%
  • Infineon (IFX TH) -1.4%
    • Infineon’s $8 Billion Plant to Boost Malaysian Chip Ambitions
  • Siemens Energy (ENR TH) -1.5%
  • Zalando (ZAL TH) -1.7%
  • Rheinmetall (RHM TH) -2.2%
    • Rheinmetall 1H Weapon and Ammunition Sales Beats Estimates
MDAX:
  • Freenet (FNTN TH) +1.4%
    • Freenet Options Imply Elevated Post-Earnings Volatility
  • Evotec SE (EVT TH) +0.9%
    • Evotec Gets $25m Milestone Payment in Bristol Myers Partnership
  • Nordex (NDX1 TH) -1.2%
  • Puma (PUM TH) -1.4%
  • TeamViewer (TMV TH) -1.4%
  • Redcare Pharmacy NV (RDC TH) -1.7%
SDAX:
  • SGL (SGL TH) +4.7%
    • SGL 1H Sales Revenue EU538.0M
  • SMA Solar (S92 TH) +4.3%
    • SMA Solar 1H Ebitda EU80.6m Vs. EU125.3m Y/y
  • Duerr (DUE TH) +2.5%
    • Duerr Sees FY Order Intake High End of EU4.6b to EU5b
  • GFT (GFT TH) -2.2%
    • GFT FY Revenue Forecast Misses Estimates

WWD : As M&A Deals Linger, Acquisition Targets & Employees Languish

As M&A Deals Linger, Acquisition Targets & Employees Languish
Companies waiting for a sale to close face their own special challenges in a tricky market.

Pity the betwixt and between.

Companies are engines of ambition — innovating here, expanding there, trying to sharpen a business or break into something new.

But when that ambition leads to a corporate buyout, much of that ambition is put on hold, as companies wait for financing to be finalized, regulators to sign off, for the deal to close and for the new boss to arrive.

That interim period can lead to a lack of immediate direction, causing sales to potentially slump and employees to mull their options.

In a world that prizes agility and the ability to go after the next big thing, it can be a long wait for a big deal to close.

A year ago this week, Capri Holdings agreed to a $8.5 billion buyout by competitor Tapestry Inc. The deal has a little bit of everything — some synergies to be realized, some data savvy to be shared and a long — and now uncertain — timeline.

The deal was set to close this calendar year, but is being challenged by the Federal Trade Commission on antitrust grounds, casting an uncertain light over the agreement.

Meanwhile, Capri, which owns Michael Kors, Versace and Jimmy Choo, has hit a tough stretch, with net losses of $229 million for the year ended March 30 on an 8.4 percent drop in revenues.

While Capri, led by chairman and chief executive officer John Idol, is working on operations day to day, it’s not currently in a position to make the bigger, business-defining moves.

And Capri isn’t the only company on the sidelines.

Neiman Marcus is also awaiting its Hudson’s Bay Co.-arranged marriage to Saks Fifth Avenue, and VF Corp.’s Supreme is waiting to be shuttled off to EssilorLuxottica.

“Management should be expected to operate, maximize quarterly earnings and drive performance in the short term,” said consultant Greg Portell, senior partner and global markets lead at Kearney. “But the longer, strategic growth elements that we expect from management teams really get put on pause [while deals are pending].

“Bold is taken off the table, if you were looking for a management team to really drive change, you’re not going to see it,” Portell said.

While 10 or 15 years ago companies would really plan for integration immediately, Portell said the pace of integration planning has “slowed dramatically” as companies become less certain about regulatory approval.

That leaves employees in wait-and-see mode — and not everybody is going to wait around to see.

“People are being very, very cognizant that they are their own brand,” said Elaine Hughes, managing director of executive search firm E.A. Hughes, a division of Solomon Page. “Every major, any even minor accomplishment, they make sure they post it on LinkedIn, they post it on Facebook. They keep their profiles very relevant and therefore the recruiting community will look to them when opportunities come up. Companies are smart, they’re aware of this.”

So firms waiting to be sold often line up retention bonuses to keep key employees hanging in until the deal is done.

“The truly critical assessment of the individuals has to come from the CEO or whoever the top management is,” Hughes said. “The company has to decide how critical that individual is to the organization and to the success and to maintaining and sustaining that success while the company is in this limbo state.”

Altogether, it can be an unsettling time.

“With any business or certainly with any employee, the worst thing is uncertainty,” said Robert Burke, chairman and CEO of the Robert Burke Associates.

But an unsettled present can also lead to a better future when the deal closes and the business wakes back up, with new energy and new faces and potentially new resources.

Burke said deals can lead to “significant opportunity for some of the existing employees to take on more responsibility, have more experience.”

“[A pending deal] can kind of stall things, it can also be a motivator for employees that are good and creative and see a bigger vision,” he said.

“Every acquisition or sale is different and they can be an incredibly positive opportunity,” Burke said. “Or if it’s just to consolidate and downsize and that’s the motivation behind the acquisition, then of course there’s going to be a level of stress.”

The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000. It appears every other Thursday.

>>> What to look at today - 8th of August 2024

Asian shares swung between gains and losses on Thursday as investors weigh the risks to global markets after a volatile week when policy decisions by central banks raised uncertainty. Japan’s Topix Index fell again Thursday after rebounding from an earlier loss of as much as 1.8%. Benchmarks in China and Hong Kong gained, while declining in Korea and Australia declined. MSCI’s Asia-Pacific Index edged lower, and was off 1.9% on the week so far. The dollar weakened against major currencies, including the yen.  A Thursday summary of opinions from last week’s Bank of Japan meeting, when it raised rates, showed one member identify the neutral rate at 1%, while another called for timely rate increases to avoid rapid hikes.  Global markets have been rocked in the past week as investors prepare for the US and Japanese central banks to move in opposite directions, in turn undermining the yen’s role as a cheap source of funding for financial assets. It is “consolidation period before any new trend, given how volatile the market has been,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Investors probably will stay sidelined until new data appear. The next couple of days will be crucial — either calm returns, or we see a new bout of volatility emerge.” Both the Nikkei 225 and the Topix have recovered about half of their losses since the end of July, when the Bank of Japan raised its key rate. Japan’s benchmark 10-year yield fell for a second day. Three-quarters of the carry trade has been unwound as the recent slump wiped out all positive year-to-date returns, according to strategists at JPMorgan Chase & Co.  The carry strategy — which involves borrowing at low rates to fund purchases in higher-yielding assets elsewhere — has been wobbling for months. Carry trades were pummeled over the past week as global market volatility jumped amid fears of rapid Federal Reserve rate cuts and after the Bank of Japan’s larger than expected rate hike.  The unspooling of the carry trade has further room to run but the declining velocity of the shift allows investors to breathe “a sigh of relief,” according to Quincy Krosby at LPL Financial. “A softer dollar, driven by the markets perception that the Fed will soon initiate an easing cycle, should help support a stronger yen — a negative for the trade.” Investors are watching for US jobless claims data Thursday to get more cues. Markets have been in a tailspin since weak economic data last week fueled worries that the Fed’s decision to hold rates at a two-decade high is risking a deeper economic slowdown. The dollar was weaker Thursday, reversing moves from the prior session. Lackluster demand for a 10-year Treasury auction and $31.8 billion in debt offerings from blue-chip companies were headwinds.   The Treasury auction result is “consistent with our view that we’re due for a continued correction higher in yield in the near-term,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The repricing following what was really just a moderately weak payrolls report seems way overdone.” Lasertec shares surge as much as 23%, the most since January 2015, after the Japanese semiconductor company reported strong fourth quarter results from record orders.  Oil steadied after its biggest advance in a week, with the market on edge over a possible retaliatory strike by Iran on Israel as payback for assassinations of Hamas and Hezbollah leaders. US After Hours ZG +12.6%, ASPN +12.1%, BOOT +9.3%, DUOL +6.3%, KLIC +3.1% higher on earnings; CDLX -45.7%, FROG -28%, BROS -21.8%, FSLY -13.7%, MGNI -13.2%, SONO -13.1%, MNST -11.2% lower on earnings.

Nikkei -0.38% Hang Seng +0.41% CSI +0.19% Shanghai +0.14% Shenzen +0.03%

Eur$ 1.0931 CNH +0.18% CNY 7.1650 JPY 146.19 GBP 1.2695 CHF 0.8592 RUB 85.7749 TRY 33.5225 WTI$ 75.49 +0.35% Gold 2,395 +0.50% BTC 56,950 +3.26% ETH 2,430 +3.47%

S&P -0.19% Nasdaq -0.07% EuroStoxx -1.07% FTSE -0.68% Dax -0.73% SMI -0.81%

Macro :
- UK Regulator Tells Online Services to ‘Act Now’ to Stop Riots
- Dimon Says He’s Skeptical Inflation Gets Back to Fed’s 2% Target
- Egypt to Avoid Iranian Airspace Due to Military Drills: MENA

Keep an eye on :
- 1U1 GY : 1&1 1H Ebitda EU326.6M Vs. EU352M Y/y
- ALV GY : Allianz Plans to Expand 2024 Buyback to as Much as €1.5 Billion
- ALV GY : Allianz 2Q Operating Profit Beats Estimates, Profit Rises on Insurance Business as Pimco Sees Inflows
- BAVA DC : Bavarian Gets $156.8m US Order for Smallpox Vaccine Production
- BHP AU : BHP Is Said to Seek Buyer for Gold, Copper Mines in Brazil
- BA US : SpaceX Tapped to Bring Astronauts Home If Boeing Craft Unfit
- CAPMAN FH : CapMan 1H EPS EU0.030
- CGCBV FH : Cargotec 2Q Net Sales Misses Estimates
- CRBN NA : Corbion 1H Adjusted Ebitda EU86.1M Vs. EU69M Y/y
- CTPNV NA : CTP 1H Adj. EPRA EPS EU0.40 Vs. EU0.36 Y/y
- DTE GY : Deutsche Telekom Boosts FY Free Cash Flow After Leases Forecast
- DEZ GY : Deutz 2Q Revenue Misses Estimates
- DOV IM : doValue Cuts FY Guidance, Plans 5:1 Reverse Stock Split
- CMBT BB : Euronav 2Q EPS Beats Estimates
- DUE GY : Duerr Sees FY Order Intake High End of EU4.6B to EU5B
- EVT GY : Evotec Gets $25M Milestone Payment in Bristol Myers Partnership
- FFARM NA : ForFarmers 1H Adjusted Ebitda EU42.6M Vs. EU26.5M Y/y
- FNTN GY : Freenet 1H Ebitda EU252.2M Vs. EU255.2M Y/y
- GAM SW : GAM Holding 1H IFRS Loss CHF39.1M Vs. Loss CHF71.2M Y/y
- GFT GY : GFT FY Revenue Forecast Misses Estimates
- GLJ GY : Grenke 2Q Net Income Beats Estimates
- HABA GY : Hamborner REIT 1H FFO EU28.3M Vs. EU28.1M Y/y
- HARVIA FH : Harvia 2Q Net Sales Beats Estimates
- HTWS LN : Helios Towers 2Q Adjusted Ebitda Beats Estimates
- HIK LN : Hikma 1H Revenue Beats Estimates
- HSW LN : Hostelworld 1H Revenue EU46.4M
- IFX GY : Malaysia Boasts of Chip Clout as Infineon Opens €7 Billion Site
- INS GY : Instone Real Estate Maintains FY Adjusted Revenue Forecast
- KBC BB : KBC FY Net Interest Income Forecast Meets Estimates
- KBX GY : Knorr-Bremse Maintains FY Operating Ebit Margin Forecast
- META US : Google, Meta Made Ad Deal to Target Teenagers; Now Canceled: FT
- MUV2 GY : Munich Re 2Q Net Income Beats Estimates
- NOD NO : Nordic Semiconductor 3Q Revenue Forecast Beats Estimates
- NOVN SW : Novartis Gets FDA Accelerated Approval for Fabhalta
- ORRON SS : Orron Energy 2Q Net Income EU7.0M
- OUT1V FH : Outokumpu 2Q Adjusted Ebitda Beats Estimates
- PSN LN : Persimmon 1H Pretax Profit Beats Estimates
- PSM GY : ProSieben 2Q Adjusted Ebitda Beats Estimates
- PRX NA : Prosus Says Basil Sgourdos Will Retire as Group CFO Nov. 30
- QTCOM FH : QT Group 2Q Operating Profit Beats Estimates
- RECSI NO : REC Silicon 2Q Revenue $37.7M
- RHM GY : Rheinmetall 1H Weapon and Ammunition Sales Beats Estimates
- SFQ GY : SAF-Holland SE 2Q Adjusted Ebit Beats Estimates
- SDZ SW : Sandoz Group Sees FY Core Ebitda Margin About 20%
- SAN FP : Sanofi: Sarclisa Combo Shows Progression-Free Survival Improved
- SBMO NA : SBM Offshore Boosts FY Adjusted Ebitda Forecast
- G24 GY : Scout24 SE 2Q Oper Ebitda Beats Estimates
- SVS LN : Savills 1H Underlying Pretax Profit GBP21.2M
- SEBA SS : SEB and Handelsbanken See Among Biggest Term-Structure Shifts
- SGL GY : SGL 1H Sales Revenue EU538.0M
- SIE GY : Siemens Enlarges Management Board, Seeks Chairman Term Extension
- SIE GY : Siemens 3Q Industrial Business Profit Beats Estimates
- S92 GY : SMA Solar 1H Ebitda EU80.6M Vs. EU125.3M Y/y
- SRBNK NO : SR-Bank 2Q Net Interest Income Misses Estimates
- SAX GY : Stroeer 2Q Adjusted Ebitda Beats Estimates
- TSLA US : Hedge Funds Cut Tesla Short Bets Before Earnings: ESG Investing
- UTDI GY : United Internet 1H Ebitda EU662.3M
- VEON US : Veon 2Q Revenue $1.03B Vs. $916M Y/y
- VSAT US : Viasat 1Q Adjusted EPS Beats Estimates
- WBD US : Warner Bros. Takes $9.1 Billion Writedown on TV Networks
- XIOR BB : Xior 1H EPRA NTA/Shr EU39.56 Vs. EU40.55 H/H
- ZURN SW : Zurich Ins. 1H Operating Profit Beats Estimates

>>> Europe : Brokers Upgrades & Downgrades - 8th of August 2024

>>> Up
* Ageas Raised to Buy at HSBC; PT 50.50 euros
* Aallon Group Raised to Buy at Inderes; PT 10 euros
* Boreo Raised to Accumulate at Inderes; PT 20 euros
* Continental Raised to Buy at DZ Bank; PT 70 euros
* HubSpot Raised to Sector Weight at KeyBanc
* Maersk Raised to Buy at SEB Equities; PT 12,600 kroner
* Sampo Raised to Buy at SEB Equities; PT 44 euros
* Swiss Prime Raised to Buy at Bank Vontobel; PT 105 Swiss francs

>>> Down
* BP Cut to Hold at HSBC; PT 490 pence
* De Nora Cut to Hold at Jefferies; PT 11 euros
* Disney Cut to Neutral at Seaport Global Securities
* Norwegian Air Cut to Sell at SpareBank; PT 9 kroner
* SBB Cut to Hold at Arctic Securities; PT 7.20 kronor

>>> Initiation
* Apple Rated New Outperform at CICC; PT $250.20
* Engie Rated New Buy at Jefferies; PT 19 euros
* Glencore Reinstated Buy at Citi; PT 530 pence
* Northern Data Rated New Buy at Baader Helvea; PT 36 euros
* ON Semi Rated New Add at Great Wall Securities
* TRESTATE GA Rated New Hold at Wood & Company; PT 1.70 euros

>>> Call
* Brand Campaigns Strengthen AliExpress Exposure in Europe: Citi
* De Nora Downgraded at Jefferies on Limited Growth Visibility
* Engie a Compelling Renewables Play, Rated New Buy at Jefferies
* Glencore Reinstated Buy at Citi on Strong Coking Coal Outlook

WSJ : AI Companies Fight to Stop California Safety Rules

AI Companies Fight to Stop California Safety Rules
Industry says a bill moving through the state legislature would chill innovation for the young technology

California has become ground zero in the fight over artificial-intelligence regulation.

AI startups and tech giants are rallying to kill a bill ascending through the state legislature that they say would impose impossibly vague constraints in the name of safety. Though some in the industry have called for government regulation, they say it should be done at the federal level with more specificity.

The bill is widely viewed as crucial for how the technology will be regulated across the U.S., as California is home to many AI companies and often has an outsize effect on laws in other states. Proposals to regulate AI nationally have made little progress in Washington.

The California bill, called SB 1047, requires that developers of large AI models conduct safety tests to reduce the risks of “catastrophic harm” from their technology, which it defines as cyberattacks that cause at least $500 million in damage or mass casualties. The developers also must ensure their AI can be shut down by a human if it starts behaving dangerously.

The bill applies to AI models that meet a certain computing-power threshold and cost more than $100 million to train—the estimated cost of training OpenAI’s GPT–4. Any company doing business in California is covered, regardless of where it is based.

SB 1047 has been passed by California’s Senate and two of the state’s Assembly committees with little opposition. Opponents hope to stop it from passing the full Assembly now that the Democratic-controlled legislature is back in session this week. Democratic Gov. Gavin Newsom’s office didn’t respond to a request for comment on whether he would sign the bill if it passes.

“If it were to go into effect as written, it would have a chilling effect on innovation in California,” said Luther Lowe, the head of public policy at startup accelerator Y Combinator, which has played a leading role in lobbying efforts against the bill.

Meta Platforms and ChatGPT maker OpenAI have also raised concerns about SB 1047, while Google, Microsoft and Anthropic have proposed lengthy amendments.

Scott Wiener, a Democratic state senator from San Francisco who drafted the bill, said he is engaging with the tech industry and is open to changes.

“There are people in the tech sector who are opposed to any and all forms of regulation no matter what it is, even for something reasonable and light-touch,” he said.

Colorado and Utah recently passed some of the country’s first laws regulating AI, but they are narrower in scope than California’s SB 1047.

Some 400 bills related to AI are currently in state legislatures across the U.S., according to the Transparency Coalition, a nonprofit that advocates for regulation of the data on which AI models are trained. Some 30 bills are at varying stages in the California legislature, with goals ranging from protecting intellectual-property rights to expanding the definition of child pornography to include images generated by AI.

SB 1047 has received particularly strong industry pushback. The bill’s language says it would mirror a safety-testing framework that OpenAI, Anthropic and other AI companies voluntarily adopted last year. Opponents say the bill doesn’t specify what those tests should be or who would be on a new commission that is supposed to oversee compliance.

“Foundational elements that would underpin the bill’s regulatory architecture are not yet in place, risking misplaced investments, misleading results, and a missed opportunity to focus resources,” Microsoft said in a letter outlining its objections to the bill.

Another concern for opponents is the bill’s prohibitions on releasing large AI models “if there is an unreasonable risk” that they “can cause or enable a critical harm.”

“This vague standard creates a legal minefield,” said Anjney Midha, a partner at venture-capital firm Andreessen Horowitz who focuses on AI. “Current technology simply cannot guarantee against these hypothetical scenarios.”

Midha said the bill would discourage large developers from making their models available to the public, fracturing a startup ecosystem that relies on such openness to innovate.

Wiener said the bill only codifies the safety standards that the industry has set on its own. “It’s not overly prescriptive,” he said.

Several computer science researchers and legal scholars including Geoffrey Hinton and Yoshua Bengio, who developed much of the technology on which the current generative AI wave is based, co-signed a letter to Newsom supporting SB1047.

“It would be a historic mistake to strike out the basic measures of this bill—a mistake that will become even more evident within a year when the next generation of even more capable AI systems is released,” the letter said.

Wiener defended his bill in a room full of startup founders and AI researchers at Y Combinator’s San Francisco headquarters in late July.

“There have been significant exaggerations about the scale of liability for model developers,” he told the audience, including a false rumor that developers would go to prison if a malicious actor misused their technology.

Still, many seemed unswayed.

“There are clauses in there that, honestly as an AI developer, I have no idea what to do,” said Stanford University computer-science professor Andrew Ng, who co-founded Google’s deep-learning research team.