The Kashmir Attack Will Renew Hostilities Between India And Pakistan

Political

Summary:

On 22 April, a terror attack in the Baisaran Valley near Pahalgam in Indian-administered Jammu & Kashmir claimed the lives of 26 people, mostly Indian tourists.

On 22 April, a terror attack in the Baisaran Valley near Pahalgam in Indian-administered Jammu & Kashmir claimed the lives of 26 people, mostly Indian tourists. This is the deadliest attack in the disputed territory since 2019 when a car bomb targeting a convoy of buses carrying Indian paramilitary soldiers killed 40 people in Pulwama. More alarmingly, it is the biggest attack targeting civilians in over two decades. The Resistance Front (TRF), a proxy for Lashkar-e-Taiba – a Pakistan-based terrorist organization – has claimed responsibility for the attack, while the civilian government in Pakistan has denied any involvement.

Benign neglect or strategic restraint?

When the government of Prime Minister Narendra Modi assumed power in 2014, it extended an olive branch to Pakistan, inviting then Pakistani Prime Minister Nawaz Sharif and other South Asian leaders to Modi’s inauguration. Modi even visited Sharif on his birthday in 2015.

But relations between India and Pakistan have since deteriorated. In 2016, India carried out so-called ‘surgical strikes’ inside Pakistan-administered Kashmir in response to an attack on an Indian army facility in Uri. In 2019, India launched airstrikes inside Pakistani territory following the Pulwama terror attack. The Modi government’s decision to end the special autonomous status of Indian-administered Kashmir in August 2019 further soured relations between New Delhi and Islamabad.

A degree of benign neglect has since crept into the bilateral relationship with Islamabad preoccupied with internal instabilities and tensions on its borders with Afghanistan and Iran, while New Delhi has sought to focus on India’s global role and aspirations rather than its chronically difficult relationship with Pakistan. This became apparent during last month’s Raisina Dialogue – India’s premier foreign policy conference – where there was hardly any discussion on India’s neighbourhood.

Whether due to the deterrent effect of the two countries’ nuclear arsenals or simply due to other priorities, there has been a degree of strategic restraint in the India–Pakistan relationship in recent years. A ceasefire along the Line of Control (LoC) demarcating Indian and Pakistan-administered Kashmir has largely held since 2021. In 2022, a missile accidentally launched by India landed in Pakistani territory, but did not trigger a retaliatory response by Islamabad. And despite its more assertive posturing, New Delhi has sought to minimize collateral damage in its retaliatory actions. Of all the countries that Pakistan shares borders with, the border with India has been the most stable in recent years.

Political and geopolitical undercurrents

The attack comes at a time when the Pakistani military is on the back foot following a string of terrorist attacks inside Pakistan and eroding public support for the army following the arrest and imprisonment of former prime minister Imran Khan and the persecution of his supporters. Pakistani army chief Asim Munir has sought to reaffirm the importance of the military to the preservation of the Pakistani state. In a speech last week he also referred to Kashmir as Pakistan’s ‘jugular vein’.

Although the civilian government in Islamabad has denied involvement, there is precedent for attacks on India taking place during periods when the Pakistani military feels it is being marginalized. In 1999, an attempt at rapprochement between the civilian governments in Islamabad and New Delhi – referred to the Lahore bus diplomacy – was derailed after Pakistani military-backed militants launched attacks in the Kargil area of Kashmir, leading both countries to war for the fourth time

The attack also took place when US Vice President JD Vance was visiting India, suggesting it was timed to draw international attention to the Kashmir issue while the spotlight was on India. Similarly, a terror attack took place in Kashmir shortly before President Clinton’s India visit in 2000.

Expect a robust Indian response and Pakistani retaliation

The Modi government has been tough on security since assuming power and Modi himself has been referred to as India’s ‘chowkidar’ (or guard) – akin to Israeli Prime Minister Benjamin Netanyahu’s ‘Mr Security’ moniker. The government has pledged to pursue terrorists wherever they may be (‘ghus ke marenge’). In a speech earlier this week, Modi stated that ‘India will identify, track and punish every terrorist and their backers,’ and would pursue the perpetrators ‘to the ends of the earth’. A robust response by India should therefore be expected – including possible military action.

The Indian government has already taken the unprecedented step of suspending the 1960 Indus Water Treaty. This World Bank-brokered water-sharing agreement for rivers that traverse both countries has survived several periods of hostility between India and Pakistan. The Pakistani government has declared any attempt by India to divert waterflows in violation of the treaty an ‘act of war’. New Delhi has also ordered the closure of the Attari-Wagah border crossing, reduced the diplomatic presence in both countries, and imposed further restrictions on Pakistani nationals travelling to India.

Pakistan has responded in kind and has also closed its airspace to Indian-owned and operated airlines and suspended trade with India, including through third countries. It has also announced that it is suspending all bilateral agreements with India, including the Simla Agreement, which established the LoC. A breakdown of the ceasefire along the LoC and a broader tit-for-tat military escalation cannot be ruled out. Limited skirmishes have already been reported.

New Delhi had been lauding the return of stability to Kashmir in recent years. Elections held in the territory last autumn were largely peaceful with a high voter turnout. Investment and tourism have flourished. This progress will be derailed by the latest attack.

Beyond the impact on Kashmir and India–Pakistan relations, this incident will also have broader regional implications. South Asia is among the least economically integrated regions of the world. The South Asian Association for Regional Cooperation (SAARC) has not held a summit in over a decade, attributed in large part to mistrust in the India–Pakistan relationship.

While New Delhi has tried to develop workaround solutions, such as promoting other regional initiatives, South Asian countries continue to lobby for the resumption of SAARC as the region’s most inclusive and all-encompassing regional forum. But the Pahalgam attack makes this even less likely to happen anytime soon.

For now, there are limited signs of external pressure on India to show restraint in its response to the attack. During previous periods of heightened tensions, the US has played a prominent role in de-escalating tensions, but not this time.

The US recently extradited a Canadian national convicted of complicity in a 2008 attack by Pakistan-based militants in Mumbai, something New Delhi had been demanding for many years. While this demonstrates the Trump administration’s more forthcoming approach to working with India on anti-terrorism cooperation, the US is unlikely to get involved beyond possible intelligence sharing.

Without significant international pressure to de-escalate, the only real restraints on both parties are concerns of a possible nuclear escalation and the impact of a conflict on their economies.

Source: Chatham House

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Michelle

Political

Economic

China–U.S. Trade War

The foreign ministry of China has called on Washington to cease misleading the public about the status of bilateral tariff negotiations. Guo Jiakun, a spokesperson for the ministry, stated in a press briefing that China and the United States are not currently engaged in discussions or consultations regarding the tariff issue.

This statement comes after U.S. President Donald Trump claimed on Thursday that trade talks between the two nations were in progress. However, both China’s foreign and commerce ministries have denied the existence of such negotiations.

In addition, Guo mentioned that he was not aware of any plans by China to exempt tariffs on certain U.S. imports. The recent exchange of remarks between Beijing and Washington has added to the uncertainty about the commencement and possibility of talks on high tariffs imposed on each other’s goods.

Source: Investing

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Catherine Richards

Stocks

China–U.S. Trade War

U.S. stock index futures rose Friday as investors piled into technology and artificial intelligence stocks following strong earnings from Google owner Alphabet, with the tone also helped by the de-escalation of trade tensions.

At 05:20 ET (09:20 GMT), Dow Jones Futures gained 12 points, or 0.1%, S&P 500 Futures rose 18 points, or 0.3%, and Nasdaq 100 Futures climbed 60 points, or 0.3%.

The main Wall Street indices closed Thursday with sold gains, putting them on a three-day winning streak and on course for a positive week.

As of Thursday’s close, the S&P 500 has a week-to-date gain of nearly 4%, the Dow Jones Industrial Average is up more than 2% and the NASDAQ Composite is more than 5% higher.

Easing of trade tensions

Sentiment has received a boost Friday following a report that China is considering giving an exemption to some U.S. products to its steep retaliatory tariffs and is asking businesses to identify goods that could be eligible.

Citing a source close to the matter, Reuters said a taskforce from China’s Ministry of Commerce is putting together a list of items that might be exempted and asking companies to submit their own requests.

Investors had already been encouraged by indications that U.S. President Donald Trump’s administration may be softening its stance towards Beijing. Trump has made China a central target of his aggressive tariff agenda, raising levies on the world’s second-largest economy to at least 145%.

On the economic calendar, the final reading of the University of Michigan’s consumer sentiment survey is set to be released. The preliminary data showed that households had a deteriorating view of the economy and expected higher inflation due in large part to the global trade tensions.

Alphabet surges on strong earnings

Alphabet (NASDAQ:GOOGL) shares rallied strongly premarket, after the tech giant reported clocked much stronger than expected earnings for the first quarter and announced a $70 billion buyback.

The company also reaffirmed its ambitious AI development plans, offering more confidence that AI-driven demand for chips and data centers will persist. The company is among Wall Street’s biggest spenders on AI.

Still, Alphabet did flag some potential headwinds from macroeconomic uncertainty, while growth in its ad business revenue, which is its biggest moneymaker, also shrank from the prior quarter .

But Alphabet’s earnings set a strong precedent for other major Wall Street tech stocks, especially those with heavy exposure to AI.

That said, Intel (NASDAQ:INTC) slid 5% as weak guidance offset consensus-beating earnings, with the struggling chipmaker also flagging heightened concerns over macro headwinds from a trade war.

Earnings continue to flow

A barrage of company earnings are due in the coming weeks, including from tech giants Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), although the focus is likely to be more on guidance for the current year, especially in the face of heightened economic uncertainty.

Other key companies like AutoNation (NYSE:AN), Colgate-Palmolive (NYSE:CL), AbbVie (NYSE:ABBV), Phillips 66 (NYSE:PSX) and Centene (NYSE:CNC) are set to report their quarterly results before the bell on Friday.

Oil heads for weekly drop

Oil prices edged higher, but the market was headed for a weekly decline amid concerns about oversupply from the Organization of the Petroleum Exporting Countries.

Both the Brent and West Texas Intermediate crude contracts were set to decline nearly 2% this week after Reuters reported that several oil producing nations in the OPEC cartel are pushing to accelerate output hikes in June, extending May’s surprise boost, as internal disputes over quota compliance deepen.

OPEC and allies like Russia, a group known as OPEC+, will meet on May 5 to finalize their plans for June output levels.

Source: Investing

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Glendon

Forex

Economic

China–U.S. Trade War

Aggressive U.S. tariff announcements could end up denting consumer prices rather than fueling inflationary pressures, European Central Bank Governing Council member Robert Holzmann told Bloomberg News.

Speaking to Bloomberg in Washington, where he is attending the International Monetary Fund’s spring meetings, Holzmann said that broader uncertainty around the Trump administration’s erratic tariff plans has left upcoming ECB decisions on interest rates "completely open."

Holzmann added that policymakers do not known "where we’ll end up," but noted that he agreed with ECB President Christine Lagarde’s recent assessment that the net impact of the levies seems to be deflationary rather than driving up prices.

The comments come after the ECB, which has slashed borrowing costs seven times since last June, is considering its next policy moves against a backdrop of widespread concern over the effect of Trump’s tariffs. Markets are currently pricing in two more quarter-point reductions before the end of 2025, as well as a 60% chance of a third, Bloomberg reported.

Earlier this month, Trump unveiled elevated duties on many countries, citing the need to rebalance perceived unfair trade practices, reshore manufacturing jobs, and boost government revenue. However, following deep ructions in stock and bond markets, Trump announced a 90-day delay to the tariffs, and has suggested that the White House is looking to secure dozens of trade deals with individual nations.

Economists have flagged that Trump’s tariffs stand to push up inflation and weigh on growth in the U.S., and potentially spread to other parts of the global economy. Businesses, meanwhile, have warned that uncertainty around the on-and-off levies has made it difficult to plan out future investment decisions.

Holzmann said that he anticipates this lack of clarity "created by the U.S. will persist" beyond the 90-day postponement, adding that there will be "scars in the economy" even if Trump ends up lowering the tariffs.

Source: Investing

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Gerik

Cryptocurrency

Regulatory rollback marks a turning point for crypto-banking integration

On May 24, U.S. financial regulators—including the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC)—announced the withdrawal of multiple supervisory and joint policy statements that previously imposed strict oversight on banks engaging in cryptocurrency-related activities. This policy reversal signals a meaningful departure from the more cautious stance that had defined the regulatory landscape under the Biden administration.

At the center of this shift is the removal of two Fed-issued supervisory letters that required banks to obtain regulatory approval before participating in digital asset markets, including activities involving stablecoins—digital currencies typically pegged to the U.S. dollar and backed by reserve assets.

A clear pivot toward enabling crypto innovation

Alongside the Fed’s action, the FDIC and OCC joined in rescinding two 2023 joint statements that had collectively warned banks about the volatility, legal uncertainties, and liquidity risks associated with cryptocurrency exposure. These now-defunct guidelines had effectively served as guardrails, discouraging mainstream banking involvement in crypto services or partnerships with crypto-native firms.

In its statement, the Fed noted that regulators would evaluate the need for new, more forward-looking guidance designed to “support innovation,” explicitly referencing crypto assets. This language reflects the Trump administration’s broader policy posture—seeking to position the U.S. as a hub for digital asset innovation while loosening previous regulatory friction points.

Strategic implications for U.S. financial institutions

By removing these formal requirements and risk warnings, regulators are clearing a path for banks to more freely explore custodial services, stablecoin issuance, crypto lending, and infrastructure integration. The move lowers the compliance burden and opens the door to a more active role for traditional financial institutions in shaping the digital asset ecosystem.

This creates both opportunities and risks. While banks gain agility to respond to market demand and potentially drive broader crypto adoption, they will now need to develop internal frameworks for risk management without the explicit oversight scaffolding that had previously guided operations. This shift implies a transition from regulation-through-limitation to regulation-through-participation.

A politically charged signal from the Trump administration

The move is part of a growing trend in the Trump administration to align with pro-crypto constituencies, offering a deregulatory alternative to Biden-era caution. In March, the OCC became the first to roll back prior guidance, setting the tone for this broader regulatory retreat. Analysts view this as an attempt to attract crypto industry support ahead of the 2026 election cycle and reframe the U.S. as a competitive jurisdiction for blockchain innovation.

However, the deregulatory momentum may not be universally welcomed. Critics argue that the absence of clear frameworks risks exposing the banking system to volatility and consumer protection concerns, especially in light of previous high-profile crypto collapses. The balancing act between innovation and systemic risk remains a central challenge.

Crypto-banking convergence accelerates under relaxed oversight

With the withdrawal of restrictive crypto guidance, U.S. banks now have a clearer runway to explore digital asset strategies without seeking prior approval. This development underscores a broader realignment in Washington’s financial innovation policy, favoring market experimentation over prescriptive regulation.

While the move may reignite institutional interest and fuel cross-sector collaboration, it also underscores the urgent need for modernized, principles-based regulation. As crypto assets inch closer to mainstream finance, the long-term stability of the financial system will depend on how effectively institutions self-regulate—and how quickly regulators adapt to a fast-evolving landscape.

Souce: Reuters

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Blue River

Forex

Technical Analysis

On Friday, the major currency pair became further entrenched within a local sideways channel, hovering around 1.1339. The US dollar retained gains accumulated over recent sessions, supported by US President Donald Trump’s confirmation that trade negotiations with China would continue.

Key factors driving EUR/USD movements

The dollar received additional support from signs of progress in trade discussions with Japan and South Korea.

Earlier in the week, US Treasury Secretary Scott Bessent emphasised that substantial US-China negotiations would require significant tariff reductions, highlighting the importance of reducing tensions between the world’s two largest economies.

Trump also softened his stance on Federal Reserve Chair Jerome Powell, saying he had no plans to replace him. This statement helped alleviate investor uncertainty regarding the Fed’s leadership.

Meanwhile, Cleveland Fed President Beth Hammack suggested that an interest rate cut could materialise as early as June, contingent on economic data. While this initially weighed on the dollar, the currency regained strength amid renewed trade optimism.

Technical analysis

The EUR/USD pair has formed a consolidation range around 1.1358. We anticipate the downward wave to continue towards 1.1280, followed by a potential corrective rebound to 1.1427. A subsequent decline towards 1.1045 remains plausible. This scenario is technically supported by the MACD indicator, with its signal line firmly below zero and pointing downward.

On the hourly chart, the pair continues its downward trajectory towards 1.1280, with this level likely to be tested imminently. A corrective pullback towards 1.1427 may follow. The Stochastic oscillator corroborates this outlook, with its signal line currently below 20 and poised for an upward swing towards 80.

The EUR/USD remains confined within a consolidation phase, with trade developments and Fed policy expectations driving near-term volatility. Traders should monitor key support and resistance levels for confirmation of the next directional move.

Source: ACTIONFOREX

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Gerik

China–U.S. Trade War

Economic

China eyes Europe to offset U.S. trade closure

Faced with escalating tariffs from the U.S., China is actively redirecting its trade strategy toward Europe in a bid to sustain export flows and repair its global economic positioning. Chinese policymakers, led by President Xi Jinping, are making symbolic diplomatic overtures—including lifting sanctions on EU lawmakers—as a gesture of goodwill. Beijing has also announced plans to welcome more European parliamentarians, reinforcing its message that it seeks closer, more stable ties with the EU.

While some European leaders remain critical of China’s alignment with Russia, recent signals from Brussels suggest a willingness to recalibrate the relationship—especially through more pragmatic economic engagement. EU officials are currently exploring policy alternatives, such as replacing last year’s 45.3% tariffs on Chinese electric vehicles (EVs) with a quota and minimum pricing system, to de-escalate ongoing trade disputes.

Strategic investments and industrial diplomacy take center stage

At the Shanghai Auto Show, Chinese firms outlined ambitious investment plans for Europe, a clear indication of their pivot away from the American market. Executives emphasized intentions to deepen their footprint across the continent, with EVs, digital services, and e-commerce identified as key growth areas. Meanwhile, China has paused retaliatory tariffs—such as those on French cognac—for three months, reducing friction and signaling a temporary opening for negotiation.

Behind these moves lies a calculated attempt to position the EU as both a substitute market and a diplomatic counterbalance to the U.S. However, as noted by Harvard’s Rana Mitter, while Beijing may seek to turn Europe into a "natural shield" for its global ambitions, the EU is unlikely to sever ties with the U.S. or shift its geopolitical alignment wholesale.

Risks of trade diversion and structural imbalances emerge

Amid this realignment, economists warn of an unintended consequence: trade diversion. According to estimates by Eurizon strategists Stephen Jen and Joana Freire, up to one-third of goods previously destined for the U.S. could now be rerouted to Europe. This could inflate China’s trade surplus with the EU by 70%, reaching approximately $420 billion—a development that could intensify political backlash within Europe, especially in sensitive sectors like automotive manufacturing and advanced electronics.

The European Chamber of Commerce in China has called on Beijing to reassess its industrial policies to avoid a stronger response from European institutions. Jens Eskelund, the Chamber’s president, urged Chinese authorities to "rethink how they engage with the world," stressing the need for reforms that align better with international norms and mitigate the risk of economic retaliation.

Summit diplomacy and a potential investment treaty revival

In a sign of mutual interest in preventing further deterioration, European leaders are preparing for a high-stakes summit in Beijing this July. Though originally planned for Brussels, the location change reflects China’s preference and a symbolic shift in diplomatic norms. EU Commission President Ursula von der Leyen and Premier Li Qiang have already agreed to launch high-level dialogues on economic cooperation, green transition, and digital infrastructure.

The revival of the China–EU Comprehensive Agreement on Investment (CAI), shelved in 2021 due to retaliatory sanctions, is now back on the long-term agenda. If sanctions are lifted, the treaty could offer EU firms improved access to Chinese markets, while affording Beijing greater legitimacy and a shield against intensifying Western economic containment.

Yet skepticism remains. As Ilaria Mazzocco of CSIS points out, "the summit’s success depends on whether Beijing is willing to make concessions"—particularly on market access, transparency, and data governance. Still, the growing urgency on both sides may create a window for narrowly focused compromise.

Trade rebalancing carries risks—and opportunities

As the U.S. clamps down on Chinese imports, Europe has become the new focal point of Beijing’s economic diplomacy. While this redirection offers short-term relief for Chinese exporters, it poses strategic dilemmas for Europe, including the risk of import surges, domestic backlash, and deeper economic dependence on a politically complex partner.

To manage this evolving dynamic, both China and the EU must pursue cooperative, rules-based mechanisms that support sustainable trade rather than opportunistic flows. Whether through revised EV policies, industrial standards, or treaty talks, the coming months will test the ability of two global actors to reset ties without triggering new fault lines in an already fragile geopolitical landscape.