WSJ : SoftBank’s Masayoshi Son Says He’s Focusing on AI Inventions

SoftBank’s Masayoshi Son Says He’s Focusing on AI Inventions
CEO says he wants to invest more aggressively as tech stocks revive

TOKYO—SoftBank 9984 3.68%increase; green up pointing triangle Group Chief Executive Masayoshi Son said Wednesday he was devoting himself to artificial intelligence and new inventions after what he described as a tear-filled rethinking of his life’s mission.

“The time is approaching for us to go on the counteroffensive,” Son said at the Japanese technology-investment company’s annual shareholder meeting. “I want SoftBank to lead the AI revolution.”

The company had been cautious about new investments owing to the global tech selloff and investment losses.

SoftBank in May reported a net loss of ¥970 billion, equivalent to $6.9 billion, for the fiscal year ended March owing to losses from its technology funds.
It marked the company’s second consecutive year in the red, but the losses were smaller than the previous year after SoftBank cashed out almost its entire stake in Chinese e-commerce company Alibaba Group.

After Son announced the shift in his investment stance, SoftBank shares were up nearly 3% in afternoon trading in Tokyo on Wednesday, and they touched the highest intraday level since November.

After a sharp fall in 2021, SoftBank Group’s share price has recovered recently in line with the overall Tokyo stock market and a rise in global technology shares.

Son has made fewer public appearances recently after halting his practice of speaking each time the company released quarterly earnings. He said lieutenants would handle the quarterly meetings because he wanted to focus on Arm, a U.K. chip-design company owned by SoftBank.

On Wednesday, he said he has also been focusing on making his own inventions in artificial intelligence. He said this followed soul-searching late last year in which he concluded that he wanted to chase his old dream of being a technology “architect” who uses the creative side of his brain.

“There were times when I felt a real emptiness,” Son said. “I had a big cry. The tears didn’t stop for days.”

He said he used ChatGPT, the artificial-intelligence chatbot, every day for brainstorming and has come up with more than 600 ideas so far. A shareholder asked about Terminator-like scenarios where AI threatens humans, and Son said he was developing technology that would give AI programs a kind of self-control so they work together with humanity.

The 65-year-old Son said he was inspired by his late friend Steve Jobs, the Apple co-founder, who worked on creative tasks such as designing iPhones in his final years.

“I am so excited and enjoying it so much that I am not ready to retire just yet,” he said.

>>> What to look at today - 21st of June 2023

Chinese stocks led Asian shares lower Wednesday amid a cautious tone in markets ahead of the Federal Reserve chief’s congressional testimony. Treasury yields and the dollar made small gains. US futures fluctuated, European contracts rose slightly and Japanese shares bucked the wider trend in Asia by eking out a small advance.  The Hang Seng Index dropped about 2% as it headed for a third-straight day of losses before a holiday on Thursday in Hong Kong and the mainland. The yuan weakened past the closely watched 7.2-per-dollar level for the first time since November. Investors remain disappointed with Beijing for so far failing to issue specific support measures and banks offering only modest rate cuts. The view was also reflected in US-listed Chinese stocks, which earlier suffered their biggest decline in three months.  Economic bellwether FedEx Corp. added to the mixed picture, tumbling in extended US trading after its outlook fell short of analyst consensus estimates on weakened demand. The S&P 500 notched its first back-to-back losses in nearly four weeks Tuesday as trading resumed after a long holiday weekend.  Investors in US stocks are caught between fear of missing out and concerns markets have run too far, too fast as they contend with overblown valuations and hawkish signals from the Fed.  Goldman Sachs Group Inc. strategists including Cormac Conners and David J Kostin said funds should consider hedging their S&P 500 exposure. Crowded bullish positioning, a narrow rally, high valuations, pricing for growth that has run past estimates and attractive alternatives to equities all add to the risks, they wrote in a June 20 note. Goldman’s base case is for the S&P 500 to climb to 4,700 in 12 months but the investment bank also sees a drop to 3,400 as possible if a recession becomes more likely. Meanwhile, bond yields fell in Asia, following the lead from US Treasuries on Tuesday. The yield on the 10-year Australian security dropped about six basis points while its Japanese equivalent fell by one basis point. Treasury yields rose fractionally on Wednesday. A gauge of dollar strength inched up after the greenback advanced against all of its Group-of-10 counterparts Tuesday except the yen. The Japanese currency weakened slightly on Wednesday. oil rose slightly as traders weighed China’s outlook and prepared for commentary from Powell. Gold was little changed after dropping 0.7% on Tuesday. Bitcoin rose as much as 3% to a six-week high on crypto initiatives involving major players from the traditional financial sector.

Nikkei +0.61% Hang Seng -1.90% CSI -0.73% Shanghai -0.52% Shenzen -1.04%

Eur$ 1.0917 CNH 7.1947 CNY 7.1915 JPY 141.74 GBP 1.2765 CHF 0.8984 RUB 84.3573 TRY 23.6241 WTI$ 71.63 +0.62% Gold 1,936 -0.04% BTC 28,755 +2.06% ETH 1,814 +1.60%

S&P -0.05% Nasdaq -0.05% EuroStoxx +0.18% FTSE +0.01% Dax +0.08% SMI

Macro :
- Goldman Sees Five Reasons for Bulls to Hedge S&P 500 Rally

Keep an eye on :
- AED BB : Aedifica Public Offering of Up to ~7.3M New Shares at €52/Share
- ANTO LN : Antofagasta’s Zaldivar Mine Presents Plan to Extend Ops to 2051
- ARGX BB : Argenx Wins FDA Approval of Vyvgart Hytrulo Injection
- ASSAB SS : Assa Abloy Sees SEK2.2b One-Time Costs in Global Tech Unit
- AXFO SS : Sweden’s Biggest Solar Park to Supply Axfood With Low-Cost Power
- BRE IM : Brembo to Vote on Moving Registered Office to Netherlands
- CARLB DC : Carlsberg Invests DKK300 Million in Ukraine Expansion: Borsen
- CSGN SW : Credit Suisse’s lawsuit against SoftBank thrown into doubt after UBS takeover
- DPW GY : FedEx’s Forecast Falls Short of Estimates Amid Weak Demand (-3% in AfterHours)
- DIS US : ‘Dahmer’ Producer Ryan Murphy Plans to Leave Netflix for Disney
- ENGI FP : Engie & Meridiam Buy Africa’s BTE Renewables, No Terms
- ENI IM : Italy’s Eni Is Said to Near $5 Billion Deal for Neptune Energy
- ENI IM : Eni in Talks With EIP to Sell Stake in Renewable Arm Plenitude
- EOAN GY : Imerys, E.ON in Pact for Energy Recovery Plant in Belgium
- EQT SS : EQT Sells €1 Billion Industrial Tech Firm Ellab to Novo Holdings
- FINS LN : Financials Acquisition Corp Plans to Raise £500m: Sky
- FROY NO : Norway Approves Froy Share Sale to Goldman Sachs Asset Mgmt
- GAM SW : GAM Holding Plans EGM for Aug. 25; Reports 1Q Loss
- HUMBLE SS : Humble Group Offers 750m Shares via Nordea, SEB
- IMPN SW : Implenia Wins Two Civil Engineering Contracts Worth ~CHF100M
- LHA GY : Lufthansa Sells Payment Specialist AirPlus to SEB Kort for €450M
- MMK AV : Mayr-Melnhof Karton Sees Fall in 1H Earnings on Weak Sales
- MNDI LN : Watch Packaging Sector Shares on Mayr-Melnhof Karton Readacross
- NKE US : Nike Falls as Inventory, Guidance Concerns Weigh on Shares
- NOVOB DC : Novo Sues Spas, Clinics Hawking Cheaper Versions of Weight Drug
- OMV AV : OMV Petrom: Up to €4B Total Investment in Black Sea Gas Project
- RNO FP ; Renault’s Ampere IPO Faces Timing, Valuation Headwind: ECM Watch
- SANN SW : Catalyst Rises as Santhera Licenses Vamorolone in N. America (1)
- STB NO : Storebrand to Recognize Tax Gain of About NOK440M in 2Q
- SAGAA SS : Swedish Property Firm Sagax Explores $185 Million Share Issuance
- SAGAA SS : Sagax Offering of 10m Shares Prices at SEK206/Share
- SDRL NO : Seadrill Sells Tender-Assist Units for Cash Proceeds of $85m
- SGL GY : SGL Carbon SE to issue approx. € 120 million convertible bonds due 2028
- SKG LN : Watch Packaging Sector Shares on Mayr-Melnhof Karton Readacross
- TSLA US : Tesla Adds $44B to Valuation as Rivian Adopts Charging Standard
- VEON US : Veon to Invest $600M in Ukraine’s Connectivity, 4G Services
- VIV FP : Italy’s Meloni Didn’t Hold Talks with Macron on Vivendi: Ansa
- VOD LN : Vodafone Taps Morgan Stanely for Spain Unit Review: Expansion

>>> Europe : Brokers Upgrades & Downgrades - 21st of June 2023

>>> Up
* AJ Bell Raised to Equal-Weight at Barclays; PT 340 pence
* BB Biotech Raised to Buy at Equita
* Clas Ohlson Raised to Buy at SEB Equities; PT 100 kronor
* Grainger Raised to Overweight at Barclays; PT 270 pence
* Husqvarna Raised to Hold at DNB Markets; PT 94 kronor
* Informa Raised to Buy at AlphaValue/Baader
* Mondi Raised to Neutral at Credit Suisse; PT 1,395 pence
* Petrobras ADRs Raised to Buy at Goldman
* Rockwool Raised to Hold at Nordea
* St James's Place Raised to Overweight at Barclays

>>> Down
* Atea Cut to Sell at Arctic Securities; PT 140 kroner
* Kojamo Cut to Underweight at Barclays; PT 9 euros
* Lanxess Cut to Hold at HSBC; PT 30 euros
* Lanxess Cut to Hold at Jefferies; PT 28 euros
* Lanxess Cut to Hold at Stifel; PT 33 euros
* Lloyds Cut to Neutral at BNPP Exane; PT 52 pence
* Metro Bank Holdings Cut to Underperform at BNPP Exane
* National Bank of Greece Cut to Hold at Deutsche Bank
* NatWest Cut to Underperform at BNPP Exane; PT 280 pence
* Netcompany Cut to Hold at ABG; PT 290 kroner
* Palfinger Cut to Hold at Erste Group; PT 30.50 euros
* Piraeus Bank Cut to Hold at Deutsche Bank; PT 3 euros
* Rathbones Group Cut to Underweight at Barclays; PT 1,950 pence
* Tesla Cut to Equal-Weight at Barclays; PT $260

>>> Initiation
* Ahold Delhaize Reinstated Buy at Kepler Cheuvreux; PT 34 euros
* Carrefour Reinstated Buy at Kepler Cheuvreux; PT 22.40 euros
* Evolution Rated New Neutral at JPMorgan; PT 1,370 kronor
* Mensch und Maschine Rated New Buy at Berenberg; PT 72 euros
* Oxford Biomedica Rated New Neutral at JPMorgan; PT 495 pence
* Pandora Reinstated Hold at Sydbank
* Xvivo Perfusion Rated New Buy at SEB Equities; PT 410 kronor

>>> Call
* BAE Has Better Uses for Capital Other Than Ball Unit, Citi Says
* Citi Sees Trends Softening For Payments Firms Wise and Adyen
* Goldman Sees Five Reasons for Bulls to Hedge S&P 500 Rally
* Lanxess Gets Downgrades at Jefferies, HSBC Following Warning
* Mensch und Maschine New Buy at Berenberg on Autodesk Partnership
* Mondi Upgraded at Credit Suisse as Earnings Seen Bottoming Out

>>> US After Hours Summary: FDX -3.1%, LZB -5.7% lower on earnings; ABR +7.9% hi

After Hours Summary: FDX -3.1%, LZB -5.7% lower on earnings; ABR +7.9% higher on news it will join S&P SmallCap 600

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: VTOL +0.4%

Companies trading higher in after hours in reaction to news: PCT +9.4% (commences PIR pellet production at Ohio plant), ABR +7.9% (to join S&P SmallCap 600), NPWR +3.5% (CEG discloses 35.3% stake in NPWR), EXAS +2.8% (releases colorectal data for next-gen Cologuard test; plans to complete FDA submission by end of 2023), OTLY +2.8% (OTLY partners with THCH to launch oatmilk latte product line), MDXG +2.6% (announces strategic realignment; provides FY23 sales targets), FULT +2.1% (increases dividend), PODD +2% (announces commercial launch of Omnipod 5 in UK), AIG +1.3% (makes interim CFO as permanent CFO), SWK +1% (SEC settles charges), THCH +0.7% (OTLY partners with THCH to launch oatmilk latte product line), CEG +0.4% (CEG discloses 35.3% stake in NPWR), V +0.3% (names new CFO), E +0.3% (nearing $5 bln deal for oil and gas explorer Neptune Energy, according to Bloomberg), DIS +0.2% (Ryan Murphy to leave NFLX for DIS, according to Bloomberg), DM +0.2% (offering by selling shareholders)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: LZB -5.7%, FDX -3.1% (also CFO to retire)

Companies trading lower in after hours in reaction to news: MSGE -5.1% (files for 5.25 mln share offering by selling shareholder), OKE -1.1% (files mixed shelf securities offering), UPS -1% (in sympathy with FDX earnings), CTLT -0.3% (names new CFO), NFLX -0.1% (Ryan Murphy to leave NFLX for DIS, according to Bloomberg), XPO -0.1% (in sympathy with FDX earnings)

FT : Rolls-Royce boss hails recovery in long-haul jet demand

Rolls-Royce boss hails recovery in long-haul jet demand
China’s recovery ‘stronger than we expected’, says chief Tufan Erginbilgic at Paris Air Show

Rolls-Royce has sounded an upbeat note that the recovery in demand for large long-haul aircraft, its key market, is “coming back strongly”, echoing comments made by client and plane maker Airbus.

Tufan Erginbilgic, who took the helm of the British aero-engine group six months ago, said demand had returned, with China’s recovery “stronger than we expected”.

The company, which builds and maintains large engines for widebody aircraft including Airbus A350 jets and Boeing’s 787, said last month that engine flying hours were back at 83 per cent of pre-Covid 19 levels.

Its business model of earning revenues on engines in the air and on after-market sales was badly hit by the grounding of a large portion of the world’s fleet during the pandemic.

The strong rebound in the aviation industry is underpinning a buying spree from airlines across the globe, bolstering order books at Boeing and Airbus.
While demand for new aircraft has been concentrated largely in smaller, short-haul and medium-haul aircraft, demand for wide-body planes has accelerated.

Executives meeting at the Paris Air show after a four-year hiatus following the Covid pandemic have said demand is outstripping supply amid persistent supply chain constraints. 

Air India on Tuesday finalised an order for 470 aircraft from both Airbus and Boeing, including 40 A350 wide-body jets which are powered by Rolls-Royce’s Trent XWB engines.

Stan Deal, head of Boeing’s commercial aircraft division, told the Financial Times separately that there was “a lot of robust ordering”. A lot of the orders being placed were for aircraft to be delivered “out into the 2030s”. 

“A lot of airlines are getting back to a growth story and trying to assure they have capacity locked up for that growth story year after year,” he said.

Erginbilgic, who is in the middle of a radical transformation of Rolls-Royce, told reporters at the show that progress was being made. 

He also said the company did not need to re-enter the market for single-aisle aircraft to grow in the future but did not rule out a partnership. Rolls-Royce, he said, does not need “narrow-body to take the business where we want to take it”. The company’s wide-body business would continue to grow, he added, as would its business jets segment.

Rolls-Royce left the market for single-aisle aircraft more than a decade ago when it pulled out of a joint venture with Pratt & Whitney of the US. There has been speculation that the company would need to find a way back into the market on the next generation of aircraft. 

Erginbilgic said it was a “moot point right now” as neither Boeing nor Airbus would be developing another aircraft until 2035. 

He stressed, however, that the company’s UltraFan programme of engine technologies would give it a way back in. 

“It’s a scaleable technology, we can scale it down all the way to narrow-body,” he said. 

FT : Volkswagen, BMW and Mercedes hit by Xinjiang forced labour complaint

Volkswagen, BMW and Mercedes hit by Xinjiang forced labour complaint
Carmakers are the target of one the first cases brought under Germany’s new supply chain law

Germany’s top carmakers have been hit by allegations of forced labour in their Chinese supply chains, in one of the first official complaints against domestic companies to be brought under the country’s new supply chain law.

On Tuesday, the European Center for Constitutional and Human Rights, a non-profit organisation based in Berlin, said it had filed a complaint with German regulators against Volkswagen, BMW and Mercedes-Benz alleging their links with forced labour in China’s region of Xinjiang.

The complaint was filed under a new German law that came into effect at the start of 2023, which requires large companies to ensure human rights and environmental issues in their supply chains are monitored and addressed. Penalties range from a fine of up to 2 per cent of total annual global sales and exclusion from government contracts for up to three years.

European companies operating in Xinjiang now face political and regulatory pressures at home and abroad, as a wave of advocacy groups start to bring legal cases in European courts over products made in Xinjiang. The US has already banned imports from the territory.

Looming regulatory scrutiny adds to the growing controversy over Volkswagen’s factory in Xinjiang. Human rights protesters were among those disrupting the carmaker’s annual general meeting last month, while investors demanded an independent audit of its Xinjiang plant.

“The presence of the factory in Urumqi alone is sufficient to establish a high likelihood that the company may be receiving labour transfers of Uyghur workers,” the complaint against VW alleged, referring to the state-sponsored forced labour programmes that Beijing is accused of administrating.

The complaints against Mercedes-Benz and BMW centred around a few indirect and direct suppliers based in or near Xinjiang, which the ECCHR said were likely to have been at risk of using forced labour.

The carmakers’ relationship with CATL, which produces nearly a third of all electric vehicle batteries, was also singled out, as the Chinese battery maker last year began to expand its footprint in Xinjiang.

All three complaints claimed that raw materials coming out of Xinjiang, such as copper, lithium and aluminium, carried an especially “high risk” of being linked to forced labour.

VW, BMW and Mercedes-Benz all declined to comment on the complaints, stating that they had yet been contacted by German regulators.

Mercedes-Benz added that “whenever concerns are raised, we push suppliers for clarification” and said that it regularly carried out spot checks with suppliers in China.

BMW said that it was “continuously” monitoring suppliers’ compliance with its standards and “consistently” investigating potential breaches.

CATL and SAIC Motor did not respond to requests for comment.

The cases will now be reviewed by the German Federal Office for Economic Affairs and Export Control, which said it would take “the necessary time”. The authority said it has received 10 complaints or tips relating to supply chain problems in the past six months.

European companies operating in China face conflicting regulations. While European Union member states are rolling out laws to compel firms to conduct corporate supply chain due diligence, China has made doing so highly dangerous with its recent Anti-Espionage Law and crackdown on consultancy and auditing firms. In March, US due diligence firm Mintz was raided — partly as a result of its work in Xinjiang.

“As long as there are no credible and effective due diligence mechanisms in place, companies should cease their business activities in the Uyghur Region,” said Miriam Saage-Maaß, Legal Director at ECCHR.

Unfettered access to Xinjiang has been impossible since the government enacted a high-security crackdown on Uyghur and other Turkic Muslims, surveilling and tailing journalists who enter the region.

Last year the United Nations concluded that there had been “large-scale arbitrary detention” in the region, and that atrocities there might even amount to crimes against humanity.

Earlier this year, Volkswagen’s China head Ralf Brandstätter announced that its Xinjiang plant was no longer producing cars, and that there were no plans to resume production; instead, it quality checks cars for sale in the region.

Volkswagen has a minority stake in the joint-venture that operates the plant, which is controlled by the Chinese state-owned SAIC Motor. Brandstätter visited the company’s Xinjiang plant in February and said the company did “not see any evidence of human rights abuses at the plant”.

FT : Telecom Italia: Italian saga series finale at risk from cornered Vivendi

Telecom Italia: Italian saga series finale at risk from cornered Vivendi
Majority shareholder Vivendi has been gnashing its teeth in the wings and may try to stop the impending nuptials with KKR

Italy is no stranger to sagas of power and intrigue, as the history of the Medici and the Borgia attests. The high-stakes battle for Telecom Italia’s network deserves its own Netflix series.

The debt-laden group has received competing bids for its telecoms grid, and is expected to move forward with KKR’s €23bn offer. Majority shareholder Vivendi is not happy. But with alternatives thin on the ground, the French media group is stuck between a rock and a hard place. 

It is not hard to see why TIM wants to do a deal.
It had €25.8bn of net debt at March this year, or 4.5 times 2023 ebitda.
It needs to refinance between €3bn and €4bn of debt a year, at higher interest costs.
Upgrading its copper network to fibre will cost €13.3bn between 2023 and 2025.

TIM has received two offers, and KKR’s looks the strongest. The floor price, around €19bn, is similar to that offered by its deal rivals Cassa Depositi e Prestiti and Macquarie. KKR has also thrown in €4bn of earn-outs, however. Moreover, CDP owns rival network Open Fiber and faces lengthy antitrust scrutiny. Indeed, there is talk of it taking a small stake in KKR’s consortium instead of making a standalone bid. 

If this all seems like the run-up to a joyful all-cast finale, think again. Vivendi, which owns 24 per cent of TIM, has been gnashing its teeth in the wings and may try to stop the impending nuptials. 

It may feel like TIM’s crown jewels are being sold on the cheap. But a lengthy bidding process has failed to find a higher offer than KKR’s. An organic turnround plan might well require an equity injection — forcing Vivendi either to stump up more cash or be diluted.

That said, cornered creatures are unpredictable and Vivendi may follow through with its threats. In order to block a deal, it would need any agreement to be put to a shareholder vote. Much is likely to hinge on the legally required approval process. The final act of this Italian saga may end up being a courtroom drama.

Reuters - Engineering consultant NV5 Global explores sale-sources

Engineering consultant NV5 Global explores sale-sources

June 20 (Reuters) - NV5 Global Inc, a U.S. engineering consultant whose business has taken a hit from its exposure to commercial real estate, is exploring a sale, according to people familiar with the matter.

NV5, which has a market value of about $1.7 billion, is in the early stages of a sale process and is working with advisers to establish whether a deal would be financially attractive, the sources said.

NV5 could decide not to go through with a transaction, the sources added, requesting anonymity because the matter is confidential. NV5 did not respond to a request for comment.

Based in Hollywood, Florida, NV5 offer services such as infrastructure engineering and building inspection to federal, state and local governments, as well as to the private sector.

While much of its work is performed on public buildings such as hospitals, schools and airports, NV5 has a real estate transaction services business that caters to commercial property, offering surveys and seismic risk assessments. It expanded this practice through the acquisition of Bock & Clark in 2017 and Global Realty Services Group in 2021.

This exposure to commercial real estate has weighed on NV5’s business and stock price. Chief Executive Dickerson Wright said on the company’s fourth-quarter earnings call in February that NV5 would have achieved more than 11% gross revenue growth in 2022 had it not been for its real estate transactions business taking a hit in the wake of high interest rates. The company’s municipal services business has been negatively affected too, he added.

NV5 shares have lost about a fifth of their value since the start of the year, underperforming a 31% rise in the NASDAQ Composite Index.

Wright, who helped launch the company in 2009 and is its second-largest shareholder with an almost 11% stake, has been a serial dealmaker, completing 57 acquisitions for NV5.

NV5 generated almost half of its $786.8 million revenue in 2022 from its infrastructure business, while its buildings consulting and geospatial solutions make up the rest.

FT : EU states resist Brussels over €66bn budget top-up

EU states resist Brussels over €66bn budget top-up
European Commission says more funding needed to cover rising interest costs and Ukraine-related expenses

Brussels faces resistance from frugal European capitals as it seeks an additional €66bn for the bloc’s common budget to cover rising interest costs, migration-related expenses and commitments stemming from the war in Ukraine. 

As part of an overhaul of the EU’s seven-year budget proposed on Tuesday, the European Commission seeks support for a €50bn package for Ukraine until 2027, of which a third would be grants and the remainder loans, as well as cash reoriented from other areas of the budget.
The commission also plans to set up a dedicated mechanism to handle interest cost overruns, with an indicative value of just under €19bn over the four-year period.

Ursula von der Leyen, the commission president, called the extra cash request a “very targeted and limited proposal” that aims to respond to a world that has radically changed since the inception of the EU’s latest seven-year budget in 2021.

But countries including Germany and the Netherlands have made it clear that while they are supportive of extra funding for Kyiv, they expect the commission to take a disciplined approach to its budget at a time when national finances are also under pressure. 

Christian Lindner, the German finance minister, warned on Friday that EU capitals were facing “very difficult budget negotiations” at home, and so “this is not the time to ask member states for more funding”. He added, however, that the attitude towards support for Ukraine was different. 

Any demands for fresh cash in areas other than Ukraine will be a “very tough sell”, said one northern EU diplomat on Tuesday as the commission prepared to unveil its budget proposals. On Monday, France’s finance minister Bruno Le Maire said Paris would save “at least €10bn” to rebalance French public spending by 2027. 

The interest repayments instrument would be designed to handle rising costs stemming from the common borrowing under the €800bn Covid-19 recovery programme agreed by member states in 2020. Those costs have spiralled as central banks have raised interest rates in response to record eurozone inflation, with the budget commissioner Johannes Hahn telling MEPs earlier in June that debt-related costs are set to double in 2024 alone from €2.1bn to €4bn.

But any proposals to ask for fresh funds from member states to deal with the rising debt costs will face tough questions from frugal member states, as they urge the commission to find savings elsewhere. 

“We didn’t see the extent of interest rate increases coming,” acknowledged one EU diplomat. “We have an interest in being the most credible possible and showing that we are a reliable debt issuer.”

The commission also unveiled plans to create new so-called own resources — mostly stemming from bloc-wide taxes and levies — which could be used to repay recovery fund debts in the coming decades. They include a new levy linked to member states’ business sectors, but attaining unanimous support for these new revenue lines will be very difficult. 

Brussels made additional funding requests in other areas, including €15bn for migration and support for neighbouring countries and a €10bn plan to support investments in technology. 

A key goal of the budget review is to put financial support for Ukraine on a firmer footing. This entails the creation of a funding mechanism that would guarantee low-cost loans underpinning Ukraine’s public finances over the next four years, extending an EU programme worth €18bn this year. 

Diplomats said the commission’s demand for fresh support for Ukraine should prove the least contentious element of the budget discussions, given the EU’s shared goal of backing Kyiv and its defence against the Russian invasion.

The €50bn package would “give visibility to the Ukrainians and send a signal to the US and UK that there is a ceiling and we’re not going to pay for everything”, one EU diplomat said.

>>> US Research Calls

Research Calls

  • Upgrades:
    • Avis Budget (CAR) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $230
    • Baidu (BIDU) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $190
    • EPR Properties (EPR) upgraded to Mkt Outperform from Mkt Perform at JMP Securities; tgt $54
    • Melco Resorts & Entertainment (MLCO) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $18.20
    • Philip Morris International (PM) upgraded to Buy from Neutral and placed on 90-day Positive Catalyst Watch at Citigroup; tgt raised to $117
    • Studio City (MSC) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $11
    • Universal Stainless/Alloy (USAP) upgraded to Overweight from Sector Weight at KeyBanc Capital Markets; tgt $16
    • US Foods (USFD) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $54
  • Downgrades:
    • Abcam (ABCM) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $22
    • Gates Industrial (GTES) downgraded to Neutral from Buy at Goldman; tgt $14.50
    • Milestone Pharmaceuticals (MIST) downgraded to Hold from Buy at Jefferies; tgt lowered to $4
    • Palantir Technologies (PLTR) downgraded to Outperform from Strong Buy at Raymond James; tgt raised to $18
    • Performance Food Group (PFGC) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $66
    • Portland Gen Elec (POR) downgraded to Neutral from Buy at Guggenheim
    • Public Service (PEG) downgraded to Neutral from Buy at Seaport Research Partners
  • Others:
    • Allstate (ALL) initiated with an Equal-Weight at Morgan Stanley; tgt $117
    • Arch Capital (ACGL) initiated with an Overweight at Morgan Stanley; tgt $92
    • Amazon (AMZN) placed on US 1 List at BofA Securities
    • American Intl (AIG) initiated with an Equal-Weight at Morgan Stanley; tgt $57
    • Aon (AON) initiated with an Equal-Weight at Morgan Stanley; tgt $340
    • Atmus Filtration Technologies (ATMU) initiated with a Buy at BofA Securities; tgt $25
    • Atmus Filtration Technologies (ATMU) initiated with a Buy at Goldman; tgt $30
    • Atmus Filtration Technologies (ATMU) initiated with an Outperform at Robert W. Baird; tgt $24
    • Atmus Filtration Technologies (ATMU) initiated with an Overweight at JP Morgan; tgt $28
    • Atmus Filtration Technologies (ATMU) initiated with an Overweight at Wells Fargo; tgt $24
    • Calliditas Therapeutics AB (CALT) initiated with a Buy at H.C. Wainwright; tgt $60
    • Centene (CNC) initiated with a Neutral at UBS; tgt $72
    • Chubb (CB) initiated with an Equal-Weight at Morgan Stanley; tgt $192
    • Confluent (CFLT) initiated with a Peer Perform at Wolfe Research
    • Delta Air Lines (DAL) placed on 30-day Positive Catalyst Watch at Citigroup
    • Element Solutions (ESI) initiated with an Outperform at BMO Capital Markets; tgt $23
    • Enhabit Inc. (EHAB) initiated with an Underperform at SVB Securities; tgt $10
    • Entegris (ENTG) initiated with an Outperform at BMO Capital Markets; tgt $129
    • Everest Re (RE) initiated with an Overweight at Morgan Stanley; tgt $429
    • GitLab (GTLB) initiated with a Peer Perform at Wolfe Research
    • Hartford Financial (HIG) initiated with an Equal-Weight at Morgan Stanley; tgt $71
    • Lemonade (LMND) initiated with an Underweight at Morgan Stanley; tgt $14
    • Manpower (MAN) initiated with a Buy at Redburn; tgt $94
    • Marsh McLennan (MMC) initiated with an Equal-Weight at Morgan Stanley; tgt $202
    • Molina Healthcare (MOH) initiated with a Neutral at UBS; tgt $310
    • Progressive (PGR) initiated with an Equal-Weight at Morgan Stanley; tgt $135
    • RenaissanceRe (RNR) initiated with an Equal-Weight at Morgan Stanley; tgt $222
    • Robert Half (RHI) initiated with a Neutral at Redburn; tgt $76
    • Travelers (TRV) initiated with an Equal-Weight at Morgan Stanley; tgt $185
    • Willis Towers Watson (WTW) initiated with an Equal-Weight at Morgan Stanley; tgt $251