>>> Europe : Brokers Upgrades & Downgrades - 4th of September 2024

>>> Up
* Argan Raised to Buy at Jefferies; PT 90 euros
* Ball Raised to Overweight at Morgan Stanley; PT $78
* Compass Group Raised to Outperform at BNPP Exane; PT 2,735 pence
* Coupang Raised to Outperform at CLSA; PT $31
* Cyfrowy Raised to Buy at Pekao Investment Banking; PT 20 zloty
* Genmab ADRs Raised to Equal-Weight at Morgan Stanley; PT $31
* Philip Morris PT Raised to $138 from $120 at Stifel

>>> Down
* Airtel Africa Cut to Neutral at JPMorgan; PT 121.30 pence
* Centrica Cut to Hold at HSBC; PT 145 pence
* DS Smith Cut to Hold at Stifel; PT 480 pence
* Grenevia SA Raised to Buy at Erste Group; PT 2.92 zloty
* Sanofi Cut to Add at AlphaValue/Baader
* Sodexo Cut to Neutral at BNPP Exane; PT 85 euros
* Super Micro Computer Cut to Equal-Weight at Barclays; PT $438
* Telekom Austria Cut to Hold at Pekao Investment Banking
* Var Energi Cut to Hold at SEB Equities; PT 38 kroner

>>> Initiation
* ABB Rated New Underweight at Barclays; PT 40 Swiss francs
* Barry Callebaut Rated New Neutral at JPMorgan
* BioLine RX ADRs Rated New Buy at JonesTrading; PT $2
* Catena Rated New Underperform at Jefferies; PT 460 kronor
* JOST Werke SE Rated New Buy at Berenberg; PT 55 euros
* Legrand Rated New Overweight at Barclays; PT 115 euros
* Lindt & Spruengli Rated New Underweight at JPMorgan
* Paratus Energy Services Rated New Buy at SEB Equities
* Sagax Rated New Underperform at Jefferies; PT 170 kronor
* Swedish Logistic Property Rated New Hold at Jefferies

>>> Call
* Commerzbank Shares Face Overhang Risk on Germany Stake Cut: Citi
* JOST Werke New Buy at Berenberg, Inflection Point Seen in 2025

>>> What to look at today - 4th of september 2024

Stocks in Asia slumped the most since the Aug. 5 rout, tracking a selloff in US peers driven by a plunge in Nvidia Corp. Shares of chipmakers tumbled amid renewed concerns over the artificial intelligence frenzy, bringing a regional equity benchmark down more than 2%. Chip giants Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. slid at least 4% each. US futures also fell in Asian trading after the S&P 500 shed more than 2%.     The risk-off mood at the start of historically tough month for markets came as a closely watched US manufacturing gauge again missed forecasts, shifting investor focus toward the odds of an economic slowdown in the world’s largest economy. That added to an already-weak sentiment in Asia, where a run of disappointing Chinese data had been hurting risk assets.   Treasury yields steadied after a tumble Tuesday. A dollar gauge snapped a five-day winning streak, its longest since April. The yen edged higher. Oil pushed lower after a decline of almost 5% on Tuesday amid weak demand and oversupply concerns.  The early-August selloff turned out to be a pause in the bull market than the beginning of a prolonged slide, as growing expectations for US rate cut erased the slump in a matter of days. The recovery gained momentum following dovish comments from Federal Reserve Chair Jerome Powell at the Jackson Hole symposium. Elsewhere in Asia, the Australian dollar held on to losses as data showed Australia’s economic weakness persisted in the three months through June. Chinese stocks dropped after a private survey showed services activity expanded less than expected, the latest sign of the economy’s fragility. The S&P 500 and the Nasdaq 100 saw their worst starts to a September since 2015 and 2002, respectively. With inflation expectations anchored, attention has shifted to the health of the economy as signs of weakness could speed up policy easing. While rate cuts tend to bode well for equities, that’s not usually the case when the Fed is rushing to prevent a recession.  Wall Street’s “fear gauge” - the VIX - soared.  Traders are anticipating the Federal Reserve will reduce rates by more than two full percentage points over the next 12 months — the steepest drop outside of a downturn since the 1980s.  Marking the start of a busy week for economic data, a report showed US manufacturing activity shrank in August for a fifth month. Focus will turn to the key US jobs report due later this week. The data is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists.   The S&P 500 dropped to around 5,530 while the Nasdaq 100 lost over 3% as Nvidia tumbled 9.5% — erasing $279 billion in a record one-day wipeout for a US stock. The US Justice Department sent subpoenas to Nvidia and other companies as it seeks evidence that the chipmaker violated antitrust laws.  US After Hours GTLB +12.4 up big on earnings; ZS -12.8%, ASAN -12.7%, and PD -12.4% among laggards following quarterly results; NVDA -2.3% down on DOJ subpoena, according to Bloomberg.

Nikkei -4.33% Hang Seng -1.16% CSI -0.51% Shanghai -0.56% Shenzen -0.34%

Eur$ 1.1055 CNH 7.1110 CNY 7.1108 JPY 145.11 GBP 1.3116 CHF 0.8479 RUB 87.7673 TRY 34.0661 WTI$ 70.02 Gold 2,495 +0.09% BTC 56,389 -3.13% ETH 2,372 -3.69%

S&P -0.60% Nasdaq -0.86% EuroStoxx -1.26% FTSE -0.89% Dax -1.16% SMI -0.87%

Macro :
- Europe Sees $1 Billion Convertible Bond Sales as Lull Ends
- Bitcoin Touches One-Month Low as Glum Traders Hedge for Payrolls
- Norway Wealth Fund May Divest Cos. That Aid Israel in War: Rtrs
- Sponsors Boosting SPACs to Biggest Month Since 2022: ECM Watch
- US 10-Year Yield May Drop Below 2% in 2024-25 Fed Cuts Scenario

Keep an eye on :
- AIR FP : ENGINE PART SHORTAGE COULD KEEP CATHAY A350 JETS OUT FOR LONGER
- BDEV LN : Barratt FY Revenue Meets Estimates
- BA US : Boeing Steps Up 737 Deliveries to China in Respite for New CEO
- BioAge Labs IPO : BioAge Labs Files for IPO to Be Led by Goldman, Morgan Stanley
- BORR NO : Borr Drilling to Hold Special General Meeting on Oslo Delisting
- CRN LN : Cairn Homes 1H EPS EU0.072
- CAST SS : Swedish Landlord Castellum Priced Euro Bonds as Market Opens Up
- CLASB SS : Clas Ohlson Aug. Organic Sales +7%
- CBK GY : German Government Plans to Cut 16.5% Stake in Commerzbank

- ROO LN : Deliveroo Holder Offers Up to 28.5m Shares: Terms
- EBOX LN : Segro Agrees to Buy Tritax Eurobox With All-Share Offer
- GALD SW : EQT, Adia, and Auba to Sell up to About 13M Galderma Shares, upsized to 14.3mil
- GLEN LN : Santos Signs Mid-Term LNG Supply Contract With Glencore
- HBR LN : Harbour Energy boss warns windfall tax rise will hit oil investment at wrong time
- INTRUM SS : Johan Akerblom Assumes Role as CFO of Intrum
- MOON LN : Moonpig Holders Offer 20 Million Shares: Terms, Moonpig Offering by Holder Prices at 200p/Share: Terms
- NVDA US : Nvidia’s Huang Loses $10 Billion in Biggest Ever Wealth Wipeout
- ONT LN : Oxford Nanopore Eyes FTSE 250 Inclusion to Widen Investor Base
- RI FP : Pernod Ricard Mulls Sale of Imperial Blue Brand in India: Mint
- PSH NA : Pershing Square Holdings Aug. Net Performance +2.7%
- QIA GY : Qiagen’s $500m Convertible Bond Offering Prices at 2.5% Coupon
- RR/ LN : *ENGINE PART SHORTAGE COULD KEEP CATHAY A350 JETS OUT FOR LONGER
- SPM IM : Saipem Awarded Two Offshore Saudi Contracts Worth About $1b
- SGRO LN : Segro to Buy Tritax EuroBox in £1.1B Deal: M&A Snapshot
- SFZN SW : EGS Beteiligungen Increases Siegfried Stake to 7.2%
- STWD US : Starwood Property Offers 17.5m Shares
- TELIA SS : Telia Aims to Reduce Headcount by 3,000 Positions in 2024
- X US : Nippon Steel Reiterates US Steel Will Remain an American Company
- PCVX US : Vaccine Maker Raising $1 Billion Leads Post-Holiday Share Sales
- WIHL SS : Wihlborgs in Pact With Arm for Property in Sweden

FT : Sony chief bets on original content as part of ‘creation shift’

Sony chief bets on original content as part of ‘creation shift’
Tech group joins Netflix, Apple and Amazon in spending war as it targets greater share of $3tn entertainment industry

Sony is betting on a multibillion-dollar push into producing more original content, as part of a “creation shift” the Japanese tech giant hopes will win it a greater share of the $3tn entertainment industry.

In an interview with the Financial Times, chief executive Kenichiro Yoshida said that Sony needed to shift its focus from distribution to the creation of intellectual property, to cement a corporate transformation from a consumer electronics brand into a global entertainment company. 

“We have the technology and creation is the area where we like and where we can contribute the most,” Yoshida said, adding that the group can still use its camera, sensor and other consumer electronics roots to produce live entertainment.

Under Yoshida, the group has spent $10bn over the past six years to build its vast portfolio of games, films and music — the three business segments that now account for 60 per cent of its annual revenue. 

The transition puts Sony alongside the likes of Netflix, Apple and Amazon in a spending war for global content that is set to reach nearly $250bn this year, according to Ampere Analysis, a market researcher. 

Until now, the Japanese group has taken a different approach. Instead of directly competing with streamers, Sony has sold its film and TV rights to them — a relationship the Japanese group wants to maintain as it involves itself more deeply in content production. 

“By putting our efforts in creation, that also means that we will work with partners on the distribution side. So I think we have developed very good relationships with the so-called Big Tech players,” Yoshida said.

So far, Sony has leveraged its variety of media businesses to better profit from its acquired intellectual property, leading to hits in recent years including The Last of Us, which was converted from a PlayStation game into a hugely popular television series, and Uncharted, another video game adaptation for cinema. 

Following the investment splurge, Sony’s top executives argue that the group needs to be more directly involved in creating content at an earlier stage to get higher returns.

“Whether it’s for games, films or anime, we don’t have that much IP that we fostered from the beginning,” said chief financial officer Hiroki Totoki, who is widely seen as Yoshida’s successor, in a separate interview.

“We’re lacking the early phase (of IP) and that’s an issue for us,” he added, noting that Sony has historically been better at finding a global audience for content that have already become popular in their home market. 

Jefferies analyst Atul Goyal says the new focus is a natural part of Sony’s evolution into a fully integrated media company but investors have also called on Sony to present more concrete plans for it to deliver higher returns as its next phase of growth.

“One thing that you need is IP, that is step one. And if you don’t start creating or buying in those that do, then the risk is someone else will do it. So the risk is not doing anything,” Goyal said.

At the centre of the “creation shift” is how Sony can generate higher returns from one of the world’s largest portfolios of Japanese anime cartoons, which was bolstered by its $1.2bn purchase of AT&T’s anime streaming service Crunchyroll in 2021. 

“It has become a movement. Some of our research shows that there are over 800mn anime fans globally, and there is going to be a billion over the next few years,” said Rahul Purini, president of Crunchyroll, which is releasing close to 200 titles a year, double what it was four years ago.

But Purini estimated that the average cost of producing anime had gone up between 40 and 60 per cent over the past few years, due to the increasing pricing power of creators in Japan as well as a limited supply of animators.

In response, Crunchyroll, which now has 15mn paid subscribers, and Sony are trying to co-produce shows. The companies are also working to train more animators, while making the creative process more efficient using digital tools and new software. 

“Given the constraints within the ecosystem, there is opportunity for various companies, including Sony, to see if there is a way to add additional capacity, bring additional talent and potentially leverage digital technology in the creation process,” Purini added.

Totoki said Sony also wanted to use its knowhow from its PlayStation Network service including payments, security and data analysis to improve engagement with Crunchyroll subscribers, and expand business opportunity through joint promotions.

“About 30 per cent of PlayStation Network service customers watch anime, but only about 5 per cent have Crunchyroll accounts,” Totoki added. 

Still, executives admit that Sony’s deeper involvement in the production process will also put the group on the frontline of the heated battle with animators, games-makers and directors and those using artificial intelligence tools to generate new material.

“It’s not going to be easy to balance . . . and it will be a continuous search for how we can use technology while protecting the rights of the creators,” Yoshida said. 

FT : Goldman slashes copper forecast dimming miners’ profit outlook

FT : Goldman slashes copper forecast dimming miners’ profit outlook
US bank expects copper to average $10,100 a tonne in 2025, sharply lower than its earlier forecast of a record $15,000

Goldman Sachs has slashed its 2025 forecast for the copper price by a third, clouding the profit outlook for leading miners.

The US bank warned this week that the expected rally in the copper market would not materialise as the Chinese property rout depresses demand for commodities. It now expects copper to average $10,100 a tonne next year, sharply lower than its prediction four months ago that it would hit an all-time high of $15,000.

“The copper rally is delayed,” Goldman analysts wrote in a note, citing a drop in Chinese metal consumption that has deepened over the past several months.

“As a result, and given the continued weakness in China’s property sector, we believe that copper inventory depletion — and its accompanying price rally — will probably come much later than we previously thought.”


The pullback for copper adds to the drag on profitability for the world’s largest miners such as BHP and Rio Tinto, which are grappling with a slide in the price of iron ore — their foremost profit generator.

Copper’s 2.1 per cent fall on Tuesday sent shares in Freeport-McMoRan tumbling 6 per cent, while Anglo American and Glencore shed more than 4 per cent.

Used for electric wiring and batteries that are crucial as the world tries to decarbonise, the red metal rallied to an all-time high above $11,000 in May as BHP pursued a £39bn takeover of rival Anglo American, which eventually collapsed.

While it has been at the centre of investor focus because of the expected surge in demand, BHP acknowledged in its annual commodities outlook released last week that the copper market would be in a marginal surplus this year and an even bigger one next year.

The metal has sunk almost 20 per cent since May to about $8,950 per tonne, sparking a wave of pessimism among the biggest lenders about the medium-term outlook for a metal used in everything from renewables to power grids.

The price decline is likely to weigh on miners’ profits going forward. For example, Freeport-McMoran, a leading US copper miner, estimates that a $220 per tonne change in copper prices would result in its expected core earnings to move by $430mn on average.

Global inventories of copper have risen to their highest level in four years as weak demand has led to a glut of metal entering into warehouses, according to Bloomberg data. In China, inventories rose in June to the highest level since March 2020 when Covid-19 ground Asia’s largest economy to a halt.


Goldman’s new forecast follows the departure of former metals strategist Nicholas Snowdon who has now joined commodities trader Mercuria.

Other banks have also tempered their copper market outlook. Macquarie said last month that strong supply and depressed demand “have pushed the market to a surplus sooner than expected, with the market expected to remain in surplus in 2025 and 2026”.

The Australian bank expects a lowest quarterly average price of $8,000 per tonne in 2026.

While BHP predicts near-term weakness, the Australian mining group is bullish in the medium term. It warned about the possibility of “systematic excess of demand over supply” as clean energy booms in the final third of the 2020s, resulting in a “fly-up” pricing regime.

FT : UK’s venture capitalists brace for tax rises

UK’s venture capitalists brace for tax rises

Higher UK taxes threaten venture capital
For the UK’s venture capital industry, the looming arrival of a new tax regime is being denounced in life and death terms.

Haakon Overli, co-founder of UK venture investor Dawn Capital, warned the contemplated tax increases “would hit us so hard . . . if suddenly 45 per cent of it goes away our economic model ceases to work”.

The alarm from Overli and his rivals across Britain comes as the Labour party and chancellor Rachel Reeves attempt to pin down their first Budget, due this autumn. The plan is expected to make “big asks” of the wealthy, many of whom are up in arms.

The venture capital industry’s concerns centre on two changes to the tax code: a potential increase in the capital gains tax and the closing of some of the loopholes that set how carried interest — the lucrative performance fees that fund managers receive from asset sales — is taxed.

Even before anything final has been approved, the discontent is palpable.

“If anything makes the UK less attractive for talent — and increasing taxes will do so — the country as a whole will end up losing,” said Taavet Hinrikus, the co-founder of London-listed fintech Wise who now runs European tech investor Plural.

The tax shift will be laid out in the October Budget. Many already see the writing on the wall: Prime Minister Keir Starmer last week gave his clearest indication yet that tax increases were on the horizon.

Reeves has said there was a £22bn “black hole” in the public finances left by the Conservative government that needed mending, with gaps in funding for Britain’s asylum system and railways. 

Capital gains and carried interest are taxed in the UK at a rate of 20 per cent and 28 per cent, respectively. That’s much lower than the highest bracket of income tax, which is 45 per cent.

While private equity executives are the first group that clearly would be affected by the rises, venture capitalists would also be forced to pay up. 

The industry is arguing that it shouldn’t be treated like its private equity peers, given so many of its wagers don’t turn profitable — let alone into unicorns. It believes taxing the profits on its big wins, as a result, would hamper the industry and future investment in start-ups.

FT : Investment banks cut China GDP forecasts as confidence wanes

Investment banks cut China GDP forecasts as confidence wanes
Analysts increasingly sceptical that Beijing will reach 5% economic growth target for 2024

Investment banks are cutting their growth forecasts for China, believing Beijing risks undershooting its official target of about 5 per cent as confidence wanes in the world’s second-largest economy.

Bank of America on Wednesday lowered its forecast to 4.8 per cent from 5 per cent and Canadian investment bank TD Securities cut to 4.7 per cent from 5.1 per cent. The moves followed a UBS cut last week and a series of similar reductions over the summer.

Economists at Citi this week warned that Beijing’s official growth target — which is the lowest in decades at “around 5 per cent” — “could be at risk”, adding to mounting concerns over the trajectory of China’s economy as policymakers grapple with a prolonged property sector slowdown and weak consumer and investor confidence.

The median forecast for full-year gross domestic product growth across dozens of economists polled by Bloomberg has slipped to 4.8 per cent, compared with 4.9 per cent in mid-August. Last year, China grew 5.2 per cent, in line with forecasts.

Bank of America analysts said China’s growth engine was “sputtering” in the second and third quarters, adding that the economy “continues to struggle with a confidence problem”.

For decades, China’s GDP growth easily met the government’s target, which is announced at a meeting of the rubber-stamp parliament early each year. But in the wake of the Covid pandemic, the figure has attracted close scrutiny.

“I think [the reason] why it’s now acquired an increased importance is [that] there are obviously downside risks to growth,” said Frederic Neumann, chief Asia economist at HSBC, which expects 4.9 per cent growth. “By putting the growth target out there, you’re anchoring expectations in the market.”

He added there was “little doubt” Chinese policymakers could steer growth towards 5 per cent given their “strong grip on the economy”.

Weaker than expected second-quarter growth of 4.7 per cent in July set off a flurry of forecast cuts. Goldman Sachs, Citi and Barclays reduced their full-year growth targets in July to 4.9, 4.8 and 4.8 per cent respectively, all from 5 per cent. JPMorgan expects growth of 4.6 per cent.

UBS chief China economist Wang Tao last week said the Swiss bank, which now projects growth of 4.6 per cent for 2024 and just 4 per cent for 2025, lowered its expectations “due to a deeper-than-expected property downturn which we believe has yet to bottom” and its impact on “household consumption”. 

UBS has also revised down its China GDP deflator, which reflects the difference between nominal and real prices, because it expects “deflationary pressures to persist for longer”. 

Ahead of August data releases next week on the economy and inflation, Citi on Tuesday said China last month suffered a “double whammy of weather shocks and weak demand”, pointing to an 8.5 per cent contraction in steel output, widening from 5.3 per cent in July.

Hunter Chan, an economist at Standard Chartered, which has forecast 4.8 per cent growth for the year, also pointed to the risk of “escalating trade tensions between China and other economies” on top of the drag from a housing slowdown in the first half. “Right now, the government’s policy on the housing sector is about stabilising [it],” he said.

China missed its 2022 GDP target, expanding just 3 per cent on a goal of 5.5 per cent after a series of Covid lockdowns. A drumroll of disappointing data releases this year has spurred calls for more government stimulus.

Alex Loo, a strategist at TD Securities, projected Beijing would miss its target again this year unless there was a mid-year budget expansion, citing “faltering spending”, a lack of private investment and “pessimism taking hold” among domestic companies and major importers.

He said officials were likely to “steer away from mention of the target like in 2022” if the August data misses expectations again.

>>> US After Hours Summary: GTLB +12.4 up big on earnings; ZS -12.8%, ASAN -12.7

After Hours Summary: GTLB +12.4 up big on earnings; ZS -12.8%, ASAN -12.7%, and PD -12.4% among laggards following quarterly results; NVDA -2.3% down on DOJ subpoena, according to Bloomberg

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: GTLB +12.4%, OS +0.7%, HLX +0.1% (guidance)

Companies trading higher in after hours in reaction to news: CLOV +20% (subsidiary signs agreement with The Iowa Clinic, P.C. to deploy AI tech), AURA +7.2% (to host urologic oncology investor event), CLLS +3.5% (presents pre-clinical evidence), RNG +2% (CFO resigns), RYAM +1.3% (increasing prices for Cellulose Specialties products), AMD +0.7% (former VP of AI initiatives at NVDA joining company), BTSG +0.5% (to acquire Haven Hospice for $60 mln), CRM +0.1% (to acquire Tenyx), CW +0.1% (awarded $26 mln Belgian Air Force contract)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: ASND -19.1% (enters into $150 mln funding agreement with Royalty Pharma), ZS -12.8%, ASAN -12.7% (also names new CFO), PD -12.4%, HQY -2.7% (also authorizes up to $300 mln for repurchases), GPK -1.1% (guidance)

Companies trading lower in after hours in reaction to news: ATHA -75.3% (topline results from Phase 2/3 LIFT-AD clinical trial of fosgonimeton), ULS -4.8% (stock offering), IRT -4.3% (stock offering), PACS -3.5% (stock offering), STWD -3.1% (stock offering), MGX -2.4% (preclinincal data for Lead Hemophilia A Program), NVDA -2.3% (receives DOJ subpoena, according to Bloomberg), STC -1.9% (increases dividend), CIFR -1.6% (files mixed shelf), AKBA -1.4% ($250 mln mixed shelf offering), PCVX -1.2% ($1.0 bln stock offering and pre-funded warrants), ARCB -1.2% (provides prelim August metrics), NOC -0.1% (awarded U.S. Navy contract), PFE -0.1% (Acepodia enters strategic clinical collaboration with Pfizer)

WSJ : Hamas Threats to Kill Hostages Could Weaken Group’s Hand in Negotiations

Hamas Threats to Kill Hostages Could Weaken Group’s Hand in Negotiations
Without a deal to end the war, Hamas leader Yahya Sinwar and his fighters would be forced to stay underground

DUBAI—Palestinian militant group Hamas suggested it would execute Israeli hostages if Israel’s military attempted further rescue missions, as both sides double down on demands to end the war in Gaza.

Hamas’s implied threat on Monday could be an attempt to widen the rifts in Israeli society over the captives and increase pressure on Israeli Prime Minister Benjamin Netanyahu to agree to a cease-fire deal.

But killing more hostages could cost the U.S.-designated terrorist group one of the most powerful bargaining chips it has as it tries to negotiate for its own survival after months of punishing warfare.

Hamas, after saying for days that Israel had killed the hostages with its bombing campaign in Gaza, issued a new statement Monday suggesting it had executed them and would do so again if Israel used military force to free them. Israel’s rescue missions aren’t expected to end unless there is a deal to release the hostages and end the fighting.

Without a negotiated end to the war, Hamas leader Yahya Sinwar and his fighters won’t be able to leave the tunnels in which they are hiding without risk of being killed by Israel. Instead, they will need to persevere as Israeli forces penetrate more deeply into Hamas’s subterranean lairs.

Hamas’s believed execution of six hostages last week sparked protests and a general strike by Israelis who want their government to agree to a cease-fire and hostage-return deal. But there are also many Israelis who view the killings as another reason the war must go on until Hamas is completely destroyed.

For Hamas, having fewer living Israeli prisoners also makes it harder to win the release of thousands of Palestinian prisoners held in Israeli jails—something Sinwar has used as a justification for the group’s Oct. 7 attack that killed over 1,200 people, mostly civilians, according to Israel, and abducted more than 240 civilians and soldiers.

Freeing Palestinian prisoners is also important to sustaining the group’s legitimacy after 11 months of war have destroyed most of Gaza and, according to local authorities, resulted in the deaths of more than 40,000 Palestinians. The figure doesn’t distinguish between civilians and combatants.

Of the remaining 97 hostages taken on Oct. 7 to Gaza, 33 of them have been declared dead by Israel. In talks with mediators, Hamas has said it might have no more than 30 living hostages in total, including 12 women, elderly or injured people, according to Arab mediators.

Hamas has managed to survive an 11-month-long offensive by a militarily superior foe. But as the Israeli military continues to expand its control, taking over key crossings and borders, dismantling tunnels and killing senior leaders, Hamas’s survival is under growing threat.

“This is an outcome of the chaotic situation that Hamas finds itself in,” said Kobi Michael, a senior fellow at the Institute for National Security Studies, a security think tank in Tel Aviv, of the threat to execute more hostages. “Hamas cannot operate any more as an organized military.”

Even so, Hamas’s goal in the war is simply survival. If Sinwar and others can achieve a cease-fire and emerge from hiding, they can claim victory and will likely be seen as the leaders of the Palestinian cause. In the absence of a cease-fire, Hamas could drag Israel into a prolonged occupation of Gaza that is likely to sap the strength of its military and prove unpopular among Israelis in the long term. Either way, the war has created a new generation of Palestinians who are openly hostile to Israel.

Israel says it has largely ended Hamas’s ability to function as an effective military, although militants continue to fight Israeli soldiers. Hamas says it can no longer communicate within the Gaza Strip, and its leaders in Qatar have largely lost touch with those in the area, according to Arab officials.

Israel says Hamas militants have started moving into humanitarian zones, a sign that the group has fewer places to hide. Last week, the Israeli army said it rescued a hostage after his captors had fled.

Israel announces killings of militants nearly daily. On Tuesday, the Israeli military said an airstrike killed eight Hamas members, including one who led an attack on an Israeli community on Oct. 7 when Hamas killed a father in front of his two young boys.

Hamas says it is able to quickly recruit new fighters, but they won’t have the same level of training as the ones who were killed.

“There’s no secret about the fact that Hamas has been weakened,” said Mkhaimar Abusada, associate professor of political science at Al-Azhar University in Gaza and now based in Cairo. “But it hasn’t been weakened to the point that they are going to surrender.”

The Israeli military is also taking greater control inside the strip, damaging the influence of Hamas as a civilian administrator.

Earlier this week, Israel facilitated the vaccination of thousands of children in Gaza against the polio virus. Gazans also say there is an increased Israeli presence in two major corridors that run across the strip, a reminder of the days before Israel withdrew from Gaza in 2005.

“I never thought we would see Israelis between us again, but here they are, they can come in and out any minute,” said Badr Abu Yousef, a 29-year-old electrician in Gaza City.

Some Arab negotiators said they believe Hamas’s threats reflect growing disarray inside the organization. Hamas has told negotiators for months that it needed a pause in fighting to track and collect the hostages held by it and other groups.

On Monday, a senior Hamas official, Khalil al-Hayya, said that Hamas’s armed wing lost contact with U.S.-Israeli citizen Hersh Goldberg-Polin, one of the six hostages killed, and his guards, after having released a video of him in April.

But then on the same day the group released a video on its Telegram channel saying it had recorded Goldberg-Polin’s final words.

“These conflicting messages will have great implications on the already complicated talks,” said one Arab mediator. “Israel has always been suspicious of Hamas claims that they did not have information on all the hostages.”

In Israel, Netanyahu’s government faces criticism from many Israelis for failing to agree to a deal and for failing to communicate a clear postwar plan for Gaza.

Israeli military officials have said the army has caused enough disruption to Hamas in Gaza, including killing its top two military leaders, and that the group can’t repeat the scale of attacks on Oct. 7.

Netanyahu has insisted that Hamas in Gaza be destroyed, militarily, and that Sinwar—who so far has successfully evaded Israeli forces—be killed.

“Killing Sinwar, of course, would be a huge victory, but it isn’t going to address, ultimately, the security problem inside Gaza,” said Sanam Vakil, a Middle-East expert at the U.K.’s Chatham House think tank. “The failing of Israel’s strategy is that they’re not willing to think about any other solution besides a military one.”

The Israeli military has become frustrated with Netanyahu’s demand in cease-fire negotiations that Israel retain control of the Netzarim and Philadelphi corridors. His critics allege the prime minister’s calculations are political: Far-right members of his coalition have threatened to topple the government if he agrees to end the war. Polls show Netanyahu wouldn’t be re-elected if elections were held now.

But Netanyahu argues that pulling Israeli troops from Philadelphi, which divides Gaza from Egypt, and Netzarim, which cuts across the enclave, would allow Hamas to reconstitute, undermining his war aims.

Political analysts and mediators who talk with Hamas say the group is unlikely to agree to those cease-fire terms, which would see it give up hostages in return for circumstances that hasten the group’s demise.

“There is no doubt that the death of many Israeli prisoners made the card Hamas has weaker,” said Istanbul-based Ibrahim Al-Madhoun, a political analyst close to the group. “But Hamas is not giving up.”