The sum of partition
India, Pakistan, the Red Sea, China, the US, Canada, and Germany.
The five things you need to know today:
INDIA. PAKISTAN. Targeted retaliation risks being mistaken as war.
RED SEA. Trump’s Houthi ceasefire blindsides Israel but cheers Iran.
CHINA. UNITED STATES. Talks about talks may cause disappointment.
CANADA. UNITED STATES. The prime minister manages a difficult neighbour.
GERMANY. Merz is given a backbench warning as he takes office.
And missing from yesterday’s email edition:
SUDAN. The civil war settles into a clearer pattern.
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INDIA. PAKISTAN. Blood and water
Targeted retaliation risks being mistaken as war.
Following last month’s terrorist attack in Kashmir, India launched 24 strikes Tuesday. Pakistan responded by allegedly downing five aircraft Wednesday. Delhi said its actions were “non-escalatory." Islamabad said they were an "act of war.”
INTELLIGENCE. In previous cross-border conflicts, there’s been an understood grammar of response, but that appears less evident this time. Whether due to more online misinformation, more hot-headed belligerents (Narendra Modi for India, General Asim Munir for Pakistan) or a more absent US mediator (others hope to fill the void), there appears more risk of unintended escalation. Pakistan claims 26 civilians have been killed so far, with 46 injured.
FOR BUSINESS. By avoiding military targets, India’s reprisals initially looked measured. But subsequent reports of an attack on a mosque (possibly used by terrorists) and the alleged death of two children could set the two sides into a retaliatory spiral. A lack of communication seems the key risk. From the operation’s cryptic name (‘Sindoor’ – a mark of a bride’s blood tie to her husband) to threats on rivers, the messages seem more devised to intimidate than inform.
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RED SEA. Truce and dare
Trump’s Houthi ceasefire blindsides Israel but cheers Iran.
Donald Trump said Tuesday the US had agreed to stop bombing Yemen in exchange for the Houthis to stop attacking US ships. The Iran-backed militia said it would continue attacking Israel, which earlier disabled Sanaa's airport.
INTELLIGENCE. It's unclear whether the deal extends to other countries’ vessels, or if it will lead to resumed shipping in the Red Sea, but it appears to have been brokered by Oman, which had been hosting US-Iranian talks. After their apparent cancellation following Trump's vow to pursue secondary tariffs against anyone who buys Iranian oil (i.e., China), the talks are now back on, and scheduled to take place on Saturday, according to Trump's fixer, Steve Witkoff.
FOR BUSINESS. Israel, already furious with Trump for stating that only 21 hostages were still alive in Gaza (it says there are 24) has been blindsided by the deal, which takes away its key vector to slowing US-Iran talks. Still, Trump has bigger fish to fry, including ahead of his visit to the Gulf next week (which he will reportedly proclaim the "Arabian Gulf"). And after a second F-18 was lost on the deck of the USS Truman, he will be minded to end a costly exercise.
CHINA. UNITED STATES. Swiss guarded
Talks about talks may cause disappointment.
Asian markets pared gains after an initially strong response to news Chinese and US trade officials would meet in Geneva Saturday. Treasury Secretary Scott Bessent, who will lead for Washington, said the talks were about "de-escalation".
INTELLIGENCE. From Beijing's perspective, the talks are more about giving Washington the chance to climb down (without needing to visit the US in case it doesn't). Its officials continue to adopt a cool tone, and an increasingly rare liquidity injection Wednesday suggests China is preparing its economy for a hard road ahead. The central bank will also drop interest rates by 10 points tomorrow, followed by a 50-point cut to bank reserve requirements next week.
FOR BUSINESS. US traders and policymakers may be disappointed if Bessent returns home with little to show but that seems likely. Unlike other trading partners, China can't politically afford to play the supplicant. It will also go into negotiations doubting US intentions. Washington has rejected Tokyo's offer to drop reciprocal tariffs. Congress has passed several anti-China bills. Donald Trump has said the US’s negotiating approach will be of him dictating terms.
CANADA. UNITED STATES. Carney at the show
The prime minister manages a difficult neighbour.
Mark Carney met Donald Trump at the White House Tuesday for their first official talks. Carney said Canada was “not for sale”. Trump said "the relationship was going to be very strong" but Canada should "never say never" on annexation.
INTELLIGENCE. Trump subjected Carney to a rambling press conference, throwing in news of the Houthi deal and remarks on his "more beautiful" Oval Office, but despite the needling, Carney stayed composed. And while it’s unlikely Trump will drop his Canada talking points it’s likely the two can do business regardless. Trump maintains nothing Carney can say will lead to a lifting of tariffs, but the experience of Mexico’s Claudia Sheinbaum suggests otherwise.
FOR BUSINESS. The experience of the automotive sector and industry lobbyists also suggests a deal can be struck. Carney's biggest headache may turn out to be not to the south but the west, where Alberta's premier agreed Monday to hold an independence referendum if a petition gets enough support. Such a vote is unlikely to pass but could reinvigorate similar ideas in Quebec. Carney may hope Trump continues to be a powerful force for Canadian unity.
GERMANY. Second chancellor
Merz is given a backbench warning as he takes office.
Friedrich Merz left for Paris and Warsaw Wednesday after being elected chancellor by parliament on an unprecedented second vote. At least 18 members of his grand coalition government failed to back him in the first round.
INTELLIGENCE. The debacle was seized on by the opposition Alternative für Deutschland, freshly labelled an extremist organisation by German intelligence, and will be regarded with schadenfreude by the approximately 75% of Germans who don't support his CDU/CSU bloc. Merz's decision to ram through historic spending reforms in the final weeks of the previous government has alienated many process-minded voters, including on the centre-right.
FOR BUSINESS. The similarly unpopular but arguably decisive Emmanuel Macron may be able to offer tips. In a tweet ahead of Merz's visit, Macron said it was up to the two of them to "make sure that the Franco-German engine and combined decision making is stronger than ever." Merz will hope the brief parliamentary revolt was a hiccup rather than a Macron-esque harbinger of things to come. In choppy trading, the DAX-40 was slightly up at the time of writing.
And missing from our edition of 6 May:
SUDAN. Drawing the line
The civil war settles into a clearer pattern.
Explosions rocked Port Sudan Tuesday after the rebel Rapid Support Forces attacked a military base there Sunday. The International Court of Justice dismissed a case accusing the UAE of fuelling genocide through its support to the RSF.
INTELLIGENCE. The ICJ ruled a lack of jurisdiction, but the UAE said it had been vindicated over longstanding accusations it was aiding the RSF. Irrespective, the RSF, having been kicked out of Khartoum, has shown it can still reach far beyond its territories in the south and west. But reach is different from control. Other evidence points to a de facto border developing between the military and RSF, loosely along the Nile, and backed by rival governments.
FOR BUSINESS. Despite attacking Port Sudan, the junta's de facto capital, the RSF seems keener on clearing the military from its remaining positions in Darfur and pivoting its forces to focus to this objective. A "Government of Peace and Unity" was declared last month. A region governed by the militia once known as the genocidal Janjaweed is a fearsome concept, but it may be more stable than an ongoing, evenly-matched war across Sudan's entire length.
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Best,
Michael Feller, Chief Strategist