India & Pakistan Strikes, UK-US Trade Talks, Merz’s Chaotic First Day
16:10 Share

You're listening to an iHeart Podcast. When you have bars in the sky, onboard showers, and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations, and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better. Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for help.

Bloomberg Audio Studios. Podcasts. Radio. News.

This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify or wherever you listen. It's Wednesday the 7th of May in London. I'm Stephen Carroll. Coming up today, India and Pakistan exchange military strikes as fears of further escalation grow. The US and UK are locked in intensive trade negotiations with hopes for a deal soon.

Plus, second time lucky, Friedrich Merz takes power in Germany as he aims to move past a chaotic start to his premiership.

Let's start with a roundup of our top stories. India has conducted what it says are targeted military strikes against Pakistan, hitting seven locations. Pakistan has called the strikes an act of war and claims to have shot down five Indian jets in response. The escalation between the nuclear-armed neighbours comes after gunmen killed 26 people in Indian-administered Kashmir last month. Pakistan's Defence Minister, Khawaja Muhammad Asif, has been speaking to Bloomberg.

We'll never initiate anything hostile towards India. But if we are attacked, we'll respond. If India backs down, we will definitely wrap up these things, you know. But as long as we are under attack, under fire, we have to respond. We have to defend ourselves. As Pakistan's defence minister speaking to Bloomberg, as India said it only targeted known terror camps and hit no Pakistani civilian, economic or military targets.

The news came just hours after India announced a landmark new trade deal with the UK. The world's fifth and sixth largest economies cut tariffs on each other's cosmetics, vehicles, alcohol and other goods. For British Prime Minister Keir Starmer, it's a major achievement.

This is the biggest trade deal that we, the UK, have done since we left the EU. And it's the most ambitious trade deal that India has ever done. This will be measured in billions of pounds into our economy and jobs across the whole of the United Kingdom.

Starmer's deal ends more than three years of trade negotiations. The UK expects the deal to add more than £25 billion a year to the economy in the long run.

Meanwhile, the UK and US are in intensive talks about a trade deal with a British team in Washington negotiating terms. According to Bloomberg sources, it's still too early to say if any agreement may come this week. James Woolcock has more. Britain has been talking up the prospects of a trade deal with America since Brexit. But the looming trade war seems to have sharpened minds on both sides of the Atlantic.

The FT reports the deal will include steel and car exemptions, with pharmaceutical goods still being argued over. But officials tell Bloomberg, although there's optimism a deal can be struck, it's unlikely to happen this week. In London, James Woolcock, Bloomberg Radio.

The three representatives are due to meet in Switzerland on Saturday and Sunday as both sides seek to de-escalate the ongoing trade standoff. These will be the first confirmed talks between the two countries since President Donald Trump announced tariffs of up to 145% on Chinese imports.

and Beijing retaliated with its own levies on U.S. goods of up to 125%. Here is the Treasury Secretary Scott Bassett speaking on Fox News. We have shared interest that this isn't sustainable. As I said before, especially on the Chinese side, and, you know, 145%, 125% is the equivalent of an embargo. We don't want to decouple. What we want is fair trade.

Scott Besson speaking on Fox News. President Trump has said in recent days that he's open to lowering tariffs on China at some point, though he also says the US is losing nothing by not trading with Beijing.

China has reduced its policy rate and lowered the amount of cash lenders must keep in reserve. The move aims to guide borrowing costs lower and release about 1 trillion yuan in long-term liquidity. These stimulus measures reflect Beijing's intensified efforts to support an economy grappling with the escalating US trade war.

Survey data released yesterday showed that China's services activity has fallen to its lowest level in seven months. Meanwhile, analysts polled by Bloomberg expect GDP growth to slow to 4.2% this year. And in Germany, Friedrich Merz has secured parliamentary backing as Germany's new chancellor on his second attempt. The conservative leader has vowed to reboot the economy and revive the country's military. But Bloomberg's Oliver Crook says his initial loss casts a shadow over the strength of his coalition.

Frederick Merz really wanted to cast himself as that strong leader of Germany and potentially within Europe. And he comes into the office now with great doubts about how strong this coalition is and how effective they're going to be at governing, particularly with the deployment of that one trillion euros worth of debt finance assets to build out infrastructure and to build out the defense industry. How certain are they that they're going to have the agreements in order to effectively deploy that capital?

And a day that was supposed to bring political stability into Germany really has brought a lot of sort of chaos and a lot of sort of doubt about the future of this coalition government.

Merz's confirmation as Chancellor comes as the European Union prepares to hit about €100 billion worth of US goods with additional tariffs in the event that ongoing trade talks with the Trump administration fail. Bloomberg understands the proposed retaliatory measures will be shared with member states as early as today and consultations will last for a month before the list is finalised.

Those are your top stories on the markets. Dollars, the dollar and equities have gotten a boost from those planned US-China trade talks set to begin on Saturday in Geneva. We've got S&P E-mini futures up by six tenths of one percent this morning. Nasdaq futures are six tenths higher. The Bloomberg Dollar Spot Index is up by three tenths.

of 1%. European stock futures looking pretty flat ahead of the trading session today. Asian equities also getting a boost by the moves by the Chinese central bank we were just telling you about. The CSI 300 is up by four tenths. The Shanghai Composite, six tenths higher this morning as well. And we've seen the main Pakistani stock market index, the KSE 100, fall some 6% on the open on those escalating tensions with India.

India's Nifty Index is trading marginally lower and the rupee is weakened slightly versus the dollar. But in a moment, we will bring you the latest on what's happening between India and Pakistan, plus trade news out of the UK doing a deal with India and hoping for an agreement to lower US tariffs on Britain as well.

But before that, another interesting read this morning from Bloomberg Opinion columnist Lionel Laurent as we're looking ahead to Germany's new chancellor taking a trip to Paris to meet Emmanuel Macron after passing that parliamentary hurdle yesterday. Will they be talking about Emily in Paris perhaps? Lionel's been looking at the media landscape in Europe and perhaps

how Mertz is reviving a proposal for a European media platform to rival the likes of Netflix. You remember Emmanuel Macron a couple of months ago bemoaning Emily in Paris, potentially moving to Rome. Now, Lionel's been cataloguing some of the efforts that were made at a national level in Europe and France and Italy that haven't worked yet.

to try and rival some of those American giants in the sector. The big production is still mostly being made by the likes of Netflix and Disney Plus and so on. But now that Donald Trump is threatening tariffs on foreign-made films, will that help to create a so-called airbus of streaming in Europe? One option that Lionel looks at is potentially boosting the Franco-German broadcaster Arte. But he says that we shouldn't underestimate how significant national interest can come to be when it comes to the media landscape.

But perhaps the consequences of not doing anything will be even bigger this time. This might be the shock that prompts a revival of some of those European proposals for a greater European giant in media. You can read more in Leonel's piece at Bloomberg.com forward slash opinion. And we'll put a link to the article in our podcast show notes.

Well, let's turn to the latest now on those rising tensions between India and Pakistan after India conducted military strikes against its neighbour. And Pakistan says that it shot down five Indian jets in response. Bloomberg's Swati Pandey joins me now for more. Swati, great to have you with us. What is the latest that we're hearing from both sides?

So to understand what's going on, I would just like our listeners, I would just like to take our listeners to April the 22nd, when a terrorist attack in Indian Kashmir had targeted civilians, especially tourists, and 26 people had died, mostly Hindu men. India had blamed Pakistan for that attack and had said it would retaliate.

And then today was the day when it decided to act and hit military camps in Pakistan. India said its response was focused, measured and non-escalatory in nature.

And then Pakistan said it has retaliated as well to India's military strikes. Pakistan said it has shot down five Indian planes. India has not confirmed those losses. Pakistan had earlier said it had taken five Indian soldiers as prisoner, but later clarified that no Indian soldiers were taken. So this is also a reminder to our listeners, especially those who might be living through their first South Asian crisis. There will be

a tremendous amount of misinformation and fake news. And it will take a while to sort through what actually happened. In 2019, when the last time India and Pakistan had a major conflict, it took analysts about three to four days after the strikes to get a clear sense of what actually happened. And with that in mind, then, Swati, what does those previous incidents tell us about where things could go from here?

So the last time, like I said, was 2019. At that time, a suicide bomber had killed 40 members of India's security forces. India had again blamed Pakistan for that and responded.

with first airstrikes on Pakistani soil since 1971. And then Pakistan retaliated by shooting down an Indian jet and arresting an Indian pilot who was later released. And after that, tensions had died down. So people who are watching this conflict are wondering whether the same pattern would repeat again.

There have been repeated conflicts over the past three decades since both countries went nuclear in 1998. And both sides have shown restraint. So whether it happens again this time is yet to be seen. This is something that, of course, will be watched the world over as well because of the scale of the two countries involved. I mean, what about a path to de-escalation from here?

Look, this is a difficult one because the relation is pretty acrimonious as we speak. India has already suspended a long-standing Indus Waters Treaty. Pakistan has said that India has almost entirely stopped the flow of water across the border through the Chenab River, which is crucial for farm irrigation. There are also skirmishes in the border.

So, Pakistan's defense minister was on Bloomberg TV earlier and he said China is a third party to Kashmir and called China a very relevant player who can use its influence. Beijing is also a major backer and financial investor in Pakistan and has reiterated its support for Islamabad. So, you know, it is a difficult situation. There are diplomatic efforts that are ongoing to de-escalate tensions.

Pakistan has said it is willing to talk to India as long as India does not resort to hostile acts, quote unquote. So we have to wait and see what either party decides to do. Bloomberg's Swati Pandey, thank you very much for bringing us up to date on that story.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better. People endure presentations.

But they engage with Canva Presentations. You click through a normal presentation. You impress with a Canva presentation. With Canva, you can use AI to instantly elevate your presentation, generating slides and text in seconds with a simple prompt. Dynamic, visually imaginative, difference-making slides. Canva Presentations provides everything you need to build your deck, so you never need to switch between apps. Just focus on what you're doing. You

You can drag and drop images, graphics, charts, and data from Canva's media library, or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too, and everyone knows presentations are a team effort. Comments, reactions, and version control are designed to help teams work together better. Working from stunning templates, you don't need to be a designer to make it look great. It's just a smarter way to build a better-looking deck.

You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com.

Well, the news coming out of India and Pakistan somewhat overshadowing an announcement that had come just hours earlier that the UK and India had finally concluded a trade deal that had been under negotiation for many years. This is British and American officials are in intensive discussions about a separate deal that could reduce the impact of some US tariffs. Our UK correspondent Lizzie Burton is with me for more. Lizzie, firstly, on the UK-India trade deal, how significant is this for the economy? So this will cut tariffs on cosmetics,

vehicles, alcohol and various other goods. And the point, of course, is to offset the disruption of Trump's tariffs. And at the same time, the UK and India are looking for trade deals of their own with the US. So it's all about...

reducing the impact of the trade war. It's a diplomatic feat. The talks for an India trade deal started in 2021, and the aim had been to conclude them by Diwali 2022. But it was notoriously hard. You hear experts saying when India looks to reach a trade deal, it ends up researching itself.

And that takes a long time. Then you had elections on both sides getting in the way. So in a way, Donald Trump's done a favour to both the UK and India by accelerating the process here. And for context, this is the UK's biggest trade deal since Brexit. It's India's first with the European economy. But

are economists saying it's only going to add 0.1% to economic growth in the long run. So really, it's a drop in the ocean compared to Brexit or Trump's trade war. How has it been received politically then in the UK? Well, there's one particular detail that's explosive, an exemption from national insurance payments for Indian workers who are staying here less than three years. So it makes them much more attractive hires for employers than other nationalities, including British citizens. And remember, it's just a month after the implementation

of that controversial hike on employers' national insurance here in the UK, which is a cost to business. The government's still trying to live down. So that is a win for the opposition, particularly Reform, which, of course, had a victory lap last week in Westminster after those bumper election results, local election results, just hands them another attack line.

This, Lizzie, as we've been also looking at the latest reporting on hopes for a deal between the UK and the US. Well, sources tell us that they're in intensive discussions now. You've got a team of British officials in Washington to negotiate terms this week. So there is optimism that a deal can be struck.

But a senior UK official told us, and this repeats the Chancellor Rachel Reid's line from the IMF meetings, Britain's not going to be bounced into a deal that isn't in its interests just because the Trump administration is keen to announce deals to soften the impact of its tariffs. But still, this would be another boon for Keir Starmer as he's trying to protect British industry from the impact of US tariffs, especially those 25% levies on steel and car imports.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepke. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day, right here on Bloomberg Daybreak Europe. There are presentations.

And then there are Canva presentations. With Canva, you can use AI to take your presentation to the next level. You can generate dynamic slides and text with a simple prompt. You can drag and drop graphics and charts from Canva's media library and add interactive elements to plus up your deck. And with collaboration tools built in, the whole team can work together better.

You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at Canva.com. Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance constantly.

You're listening to an iHeart Podcast.