UK’s New Israel Sanctions, Oil Back Near $100, Europe’s Software Giant Gamble

0:02 Bloomberg Audio Studios.

0:04 Podcasts.

0:05 Radio.

0:06 News.

0:09 This is the Bloomberg Daybaker podcast.

0:11 Good morning.

0:12 It's Tuesday the 8th of September. I'm Caroline Hepka in London.

0:15 And I'm Stephen Carroll in Brussels.

0:17 Coming up today, the UK prepares to ban trade with Israeli settlements in the West Bank, risking a clash with President Trump.

0:25 Oil nears $ 100 a barrel as traders weigh renewed fighting and an Iran-Oman shipping deal.

0:32 Plus, a look inside Europe's biggest software giant as it fights to stay relevant in the AI era.

0:38 Let's start with a roundup of our top stories.

0:42 The UK government is expected to ban trade with Israeli settlements in the West Bank today. Bloomberg first reported last month that Britain was drafting sanctions to increase pressure on Israel over new settlement homes. Foreign Secretary Ed Miliband is expected to announce the measures in the coming hours. Speaking in Parliament last week, he explained why he believes it's right to take action.

1:03 Israeli settlements are illegal under international law. Last month, we saw the issuing of tenders for the E1 settlement, long regarded as the crossing of a red line, but it cuts through the heart of the West Bank and risks making a Palestinian state unviable. This action was rightly condemned by a whole range of countries in the international community, including the United Kingdom. Over recent weeks, we've also seen appalling settler terrorism and Palestinians driven from their homes. Mr Speaker, this government will not acquiesce in the destruction of the two-state solution.

1:32 We will act.

1:33 While many Labour MPs back the move by Miliband, UK officials are concerned about the response from Washington. They fear the announcement could provide an early setback for Prime Minister Andy Burnham's relationship with President Donald Trump. The two leaders spoke by phone yesterday and discussed a two-state solution for Israel and the Palestinian territories. Israel has warned that it will retaliate diplomatically, with Foreign Minister Gideon Saar last week accusing the UK of trying to tip the scales against Netanyahu's hard-right coalition ahead of elections next month.

2:05 The price of oil is holding near $ 100 a barrel as renewed US-Iran fighting threatens energy supplies. Brent has risen more than 30% since the war began, and Goldman Sachs believes markets are increasingly pricing in a prolonged conflict. Iran says that a deal with Oman on a temporary safe shipping route through the Strait of Hormuz is imminent. But Bloomberg's Stephen Stepchinski, who leads our energy team in Asia, says it's unclear how that would be received.

2:35 If the U.S. isn't involved, how do they respond? How does the White House respond?

2:38 Because they have been trying to gain more control over this waterway and they've been trying to push for it to return to pre-war levels. Whereas Oman and Iran have in the past hinted that they want to create some sort of tolling system within the strait. And if they do that, the United States is unlikely to accept it.

2:55 In fact, not just the U.S., oil majors as well.

2:59 Stephen Stepshinsky was speaking as the conflict is also complicating European efforts to rebuild gas inventories ahead of the winter. German storage is just over 54% full. That's the lowest for this time of year since records began in 2009.

3:15 Andy Burnham says Labour must stop the politics of poison seeping into our streets after weekend anti-migrant protests in England. The UK Prime Minister made the comments at a closed-door Labour meeting after masked protesters blocked roads in Portsmouth in the south of the country on Sunday. The standoff with police followed the arrival of a dinghy carrying 120 people.

3:37 There were similar demonstrations in Dover the day before. Labour MP Mike Tapp wants Andy Burnham to call an emergency COBRA meeting.

3:45 This is a crisis that we must solve. Illegal migration is absolutely unacceptable. We have to gain control of the borders. And of course, we've made progress on that. But by convening COBRA, all of the mechanisms of government can come behind this problem and we can do our best to solve it.

4:03 Mike Tapp was speaking as the UK's policing minister warned anti-migrant demonstrators will face the full force of the law if peaceful protests cross into illegality.

4:14 Canada has imposed tariffs of up to 50% on hundreds of American products from today. The measures cover goods including dairy, steel and aluminium. Brendan Murray is Bloomberg's trade czar.

4:28 These are really going to hit U.S. exporters pretty hard. And the idea here from from Ottawa is that this will put pressure on the Trump administration economically in the final couple of months here before the midterm elections.

4:41 Bloomberg's Brendan Murray speaking there as President Trump threatened to ban sales of Canada's Bombardier jets in the U.S., Writing on social media, Trump said that more than half the company's revenues come from the United States. In response, Bombardier said that its aircraft create tens of thousands of jobs in the US.

5:01 Mistral AI has raised € 3 billion from investors led by Samsung to fund the development of AI models and build infrastructure. The latest round gives the firm a valuation of more than € 21 billion, nearly double what it was last year. Speaking to Bloomberg, CEO Arthur Mensch says the money will be used to help the firm grow.

5:21 Those 3 billion euros.

5:22 That we've just raised are going to be put at work to scale our training capacity, to further deploy the infrastructure that we need to serve our enterprise customers, to further invest in industrial artificial intelligence, which is what we have been doing with ASML and what we intend to be doing more and more in the semi-industry space. And it's also a way for us to continue to scale our go-to-market globally.

5:45 Mistral's Arthur Mensch speaking there. Mistral is a fraction of the size of AI giants like OpenAI and Anthropic, but has been selling itself as a sovereign alternative for Europe, striking deals with firms including Airbus and BMW.

6:00 OpenAI's top scientist is warning that AI is advancing so quickly that humans may struggle to understand and control it. In a post on the company's website, Yako Paiyoki said that AI labs may need to voluntarily slow development until shared safety standards are established. Paiyoki says that AI... could soon improve itself without human intervention, declaring this is a time that calls for extreme caution. OpenAI has said that it wants to build a true automated AI researcher in less than two years.

6:36 And this summer's dry weather in France is hitting wine production and in particular champagne.

6:41 Bloomberg's Ewan Potts reports.

6:44 France is expected to produce almost 50% less champagne this year than last with vineyards hit by scorching temperatures and drought.

6:52 And it's not just the bubbly.

6:54 Overall, French wine production is forecast to fall by 6%, with the national harvest set to be one of the smallest in 30 years. Extreme weather's been hitting vineyards for several years now, adding pressure on an industry already struggling with weaker demand and falling exports. For French winemakers, there's not much to toast right now. In London, I'm Ewan Potts, Bloomberg Radio.

7:15 So, those are our top stories for you today. Let's look at the markets. The U.S. is back after the Labor Day holiday. So, it does feel like this really is the start of autumn. Asian equities this morning seeing gains. MSCI Asia Pacific Index actually lower, sorry, a tenth of 1% right now. The KOSPI, though, is seeing those gains up by 1.1%. with Samsung Electronics and SK Hynix being the biggest drivers there. All prices have spiked again, up 0.7% of 1% for Brain Creed, features $ 97.

7:46 72.

7:46 We've also seen big standout moves for the yen, extending a rally. So, we saw it appreciating by 1.2% on Monday and the Japanese yen this morning up another six-tenths of 1%. Nasdaq stock futures up by half of 1%. U.S. stocks 50 futures, though, down this morning a tenth of 1%. And then let's check in on U.S. treasuries this morning.

8:09 They trade lower in terms of yields, 477 for 10-year treasuries this morning.

8:15 Well, in a moment, we will bring you more on the UK's plan to impose new sanctions on Israeli settlements in the West Bank, plus how Europe's biggest software company is racing to adapt to the challenges of AI. But first, a word on another story that we've been reading this morning on whether you can use a tapestry to paper over the cracks in a creaky friendship. Bloomberg Opinions' Martin Ivins has been writing. about France lending the Bayeux Tapestry to the UK. Its arrival, I think it's fair to say, Caroline, has caused a fair amount of excitement in London. I don't know if you've managed to get one of those 100,000 tickets to see it.

8:47 I have not. I'm very disappointed. People are going wild for the Bayeux Tapestry with all of its hundreds of characters and horses and ships. But in some ways, I'm surprised because it's only a quick hop over to Normandy to see it in France. But anyway, yeah, people are going completely crazy. Tatler says it's the place to be seen.

9:07 Tapestry fever has hit London, I think, on the basis of this. But Martin is actually writing about what this means for the relationship between the UK and France. Often complex, as we know, I think, to understate some of the history between the two countries. But the loan is a sign of the improved relationship after the latest twist, which, of course, was Brexit. Martin says it's a cool calculation from Emmanuel Macron at a time when the countries have been cooperating more in Ukraine and other security matters. But there are some caveats in the relationship to the question of whether France is particularly being transactional in a lot of its dealings with the UK, demanding the financial contribution

9:42 that's prevented Britain from joining the SAFE programme, the EU Defence Loans Programme.

9:47 As well.

9:48 And what all of this means for, you know, if Andy Burnham were to resurface some of his previously stated desires for the EU to join or for the UK to join the EU's single market, again, you know, would that... be something that perhaps France might be able to facilitate if there was a desire to do it down the line as well? How far does the Entente Amicale extend when it comes to the two countries supporting each other?

10:11 Yeah, to me, Brexit was the first question that basically everybody asked me when I was over in the US, which surprised me because Brexit feels so old to people living in London. And often people don't want to talk about the history of 10 years ago. But of course, thinking about your tapestry, which is a thousand years old, you realise it's a very long arc of history, isn't it?

10:31 Yeah, it certainly is. But a really interesting read from Martin Ivins. We'll put a link to it in our podcast show notes. That's bringing more details now, though, on our top story, the UK's plans to impose new sanctions on Israeli settlements in the West Bank. Our Jerusalem reporter, Dan Williams, joins us now for more. Dan, how significant is this announcement expected from the UK today? And how does it compare to the approach taken by other European countries?

10:56 It's significant.

10:57 In fact, it has the makings of quite a bilateral blow-up between the UK and Israel. Trilateral, if you include the very likely possibility that the US President Trump will weigh in on behalf of his ally in the Middle East, Israel, in this matter.

11:15 Even though the United States, even under Trump, has.

11:18 Not gone as far as recognizing Israel's claim to the settlements, it has watered down previous U.S. opposition to the settlements, and that is in striking contrast to... to the US, to some other countries in Europe. You mentioned other European countries. It's worth noting that just a few weeks ago, the Netherlands passed a similar resolution. And in response, the Israelis showed their contingent from the Gaza fusion center.

11:49 This is a center outside the Gaza Strip.

11:52 Where international parties are trying to put together a means of implementing President Trump's plan for a post-war Gaza Strip, those Dutch citizens there, the Dutch contingent, was asked to leave by the Israelis in response. I think that is something we can expect to happen with a British contingent.

12:11 There, which is bigger than the Dutch contingent.

12:13 I've been told it's actually the third biggest contingent after the US and Israeli contingents. So that could be just a starting blow in terms of what these Israelis are hinting could be serious diplomatic reprisals.

12:26 Gosh, OK, so that may be part of the Israeli response then. But of course, all of this also comes as Prime Minister Netanyahu is preparing for elections next month. So that surely does that add to pressures to the tensions here?

12:43 Absolutely.

12:44 I think if this decision by the UK were to have been taken seven weeks hence, the Israeli response might be very different. However, the Israeli Prime Minister Netanyahu is fighting for his political career. There are other ramifications for him in his personal life, given that he's also facing a long-running corruption trial. He really does want to survive this election and stay in power, extending his record-long tenure. However, that means he has to keep his religious rightist allies very close and as happy as possible. Those religious rightist allies, for them, the settlements are a centerpiece ideologically, politically, militarily.

13:27 And they, if you notice these really responses so far to this yet to be announced British decision, the most valuable of them are from those leading far right allies. Smotrich, the finance minister, Ben-Gvir, the internal security minister, both of whom, not coincidentally, have been personally sanctioned by.

13:46 The UK government.

13:47 Ben-Gvir suggesting Israel recognise.

13:50 The Argentinian claim to the Falkland Islands.

13:53 Smotrich suggesting Israel expel the British ambassador, that really gives you a sense of the temperature around this. Now, Netanyahu may not heed those more extreme calls. However, he's going to have to take strong action in order to keep them happy and his pro-settler constituency happy as well.

14:13 How difficult a situation does this move by the UK put the country in relationship with the US.

14:20 And President Trump?

14:20 We're told the two leaders did speak about Israel when they talked yesterday.

14:25 Yes, and those waters were already murky.

14:28 This basically added to that soup of ill will, if you like, between the albeit new British premier and the US president, given what Trump has seen as a lack of support by Britain during the war in Iran, access to Diego Garcia and the like for US aircraft.

14:47 So this could be a tipping point for Trump.

14:51 Again, he's had his own misgivings about Israeli policy in the past. There have been a few wrinkles in his relationship with Netanyahu. However, it is a strong relationship. It remains strong. The allies remain in this war against Iran such that it is, though Israel has not been participating in the shooting war against Iran in recent weeks. It has been fighting on the second front against Iranian-backed Hezbollah in Lebanon.

15:15 They do closely coordinate.

15:17 And yes, it can be expected, at the very least rhetorically, in terms of the last minute exaltation on the Brits to relent or to rethink the Trump can be expected to pitch in today.

15:27 In terms of the EU and European countries, can we go back to that point to understand a little bit more about the EU's position now in terms of its relationship with Israel? How How difficult are those relations? Because you've talked about, you know, the murky soup of relationships between the U.S., U.K. and Israel.

15:51 Well, the EU is a major trading bloc with Israel.

15:54 I don't think the Israelis would deny that, though generally when you ask Israel, like much of the world, they look to the U.S., for leadership, for support, for.

16:03 Some kind of moral example.

16:05 However, when it has come to the settlements, the EU, certainly the more Western members of the EU bloc, have been increasingly protesting against the expansion of those settlements.

16:19 The EU is very much invested in the two-state solution.

16:22 That is a principle going back really four decades now, whereby the Palestinians would get a peaceful state alongside Israel.

16:30 They see the settlements as as preventing that.

16:33 And I have to say, I was on tour of the settlements yesterday for a separate Bloomberg story. And quite aside from ideology and politics, the sheer bustle and growth of populations on both sides, it's really astonishing how in many parts of the West Bank, there is a cheek by jowl quality to these two communities living as neighbors, but very unhappily as such. It's very hard to see how they could be disentangled in a way that would allow the Palestinians to self-government and territorial contiguity. The Europeans have been looking at that very closely for a very long time. They have a different history with a part of this world than the United States does. And it's worth remembering these British sanctions would target settlements rather than

17:15 Israel as a whole. Nonetheless, the Israelis, certainly since the October 7th attack from Hamas in the Gaza Strip, which it's worth remembering is also meant to be part of that two-state peaceful solution, have had zero patience for that idea.

17:31 It really is a dead letter, if you ask most Israelis. So there really is.

17:36 A clash there between the European vision for the Middle East future, the Israeli vision, and I think the Europeans have been trying to thread that needle showing the Israelis where they stand while not burning.

17:50 Bridges fully with the Israeli government.

17:51 The question is whether the British government, which, by the way, with some European powers earlier in this Labour government's tenure under a different prime minister, recognised the Palestinian state in the West Bank and the Gaza Strip, a Palestinian state there.

18:08 It has already pitted itself against Israeli public opinion.

18:12 It would seem that this decision now may be enough to tip the scales in Israel, at least with this Israeli government, when it comes to the bilateral relationship with London.

18:21 Okay.

18:21 Dan Williams reporting from Jerusalem. Thank you. Stay with us. More from Bloomberg Daybreak Europe coming up after this.

18:32 Now, let's talk about the rapid development of AI, which has sent shockwaves through the software industry. Shares have plunged as investors fear the technology threatens traditional software firms' business models. Europeans, countries, the largest software business being SAP, is racing to stay relevant.

18:52 The CEO says that the pressure is now at its highest. Our tech reporter, Christina Kriasoglou, joins us now from Berlin for more on this. Good morning, Christina. Now, you've been speaking to Christian Klein. How is he and SAP faring in their efforts to adapt to AI? I mean, we've got to use this phrase, SaaSpocalypse, haven't we?

19:19 The company is not sharing any numbers on its AI revenue yet. So, that makes it difficult A bit harder to assess from that point of view, so we really have to rely on our sourcing here. And I've been speaking to SAP's customers for years now and in recent times. Of course, it's been all about AI and how that is going. And the company is really, really feeling the time crunch because the early products that SAP rolled out, customers weren't too happy about because some of the AI agents were really hard to implement and it was really hard for them to get them to run on the data that they wanted the agents to run upon and in the end they felt like they're not getting the efficiency out of that AI that they wanted to. So

20:13 UBS analysts just noted now in late August again that the company is only rolling out AI slowly and that leaves open the opportunity for competitors to jump in and that SAP is kind of like leaving monetization opportunities on the table. And my sources tell me that speed really is one top priority at the very high levels of the company right now. And I mean, Klein says, As you mentioned, the pressure is at its highest, but he also feels like no other software company has pulled ahead of the pack yet. So if SAP delivers as they intend to in the second half of the year, he feels that they can be leading in the software sector.

20:57 So that will be definitely interesting to watch. He has very big plans.

21:01 Yeah, I mean, shares down over 12% year to date for SAP. So if he has those big plans, given that the reception from customers has been, let's say, not great, what does SAP plan to do to tackle these issues? And what's the risk for the company if they don't manage it?

21:21 Yeah, so of course, client's to-do list is longer than ever. He, first of all, has to push SAP still through the cloud transformation because they've been a bit late to that one as well. The more of his customers are in the cloud, the easier it gets for them to run AI and also to adapt. So that's still the very first step that he can't lose his focus on. And at the same time, he said that the company will roll out 400 AI agents until the end of the year.

21:54 So lots of products. And to fix the underlying implementation issue, that we discussed, he introduced a new platform that a company called Business AI Platform. And it's supposed to have all the context from all the 50 years of business that SAP has been doing, because of course they understand how companies are being run. So this kind of context is supposed to be instilled into that platform so that on top of it, the AI agents can run a lot more smoothly, He's also changing how developers are approaching their work. He says they now have to completely rethink how to build these AI agents. Whereas in the past, they were only building features for clients that they requested and never really had to think about the underlying logic.

22:55 And he's also really been putting his organization through the ringer with a lot of reorganizations.

23:01 This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond.

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