INDIA: PAKISTAN-EU Encourages 'Restraint', But Rhetoric Remains Escalatory
May-08 10:40
The US Consulate in Lahore has issued a 'shelter in place' order amid what it says are "reports of drone explosions, downed drones, and possible airspace incursions in and near Lahore", amid the continued escalation in action and rhetoric between India and Pakistan. As noted earlier (see "INDIA: Pakistan Minister Says 'Rest Assured' Nation Will Retaliate', 1024BST), both sides have accused the other of attacks while also restating their intentions to retaliate in response.
- The 'fog of war', social media disinformation, and deliberate attempts by both sides to portray their armed forces as being the most effective make it difficult to judge whether the claims on the number of drones/missiles shot down, soldiers/terrorists eliminated, or civilians killed are legitimate. Nevertheless, the media reports regarding air defence systems in Pakistan being 'neutralised' and '40-50' Indian soldiers killed along the border will do little to de-escalate the situation.
- Global and regional powers will be encouraging both nuclear-armed states to utilise 'off-ramps' from escalating the conflict further. The EU has released a statement calling for "both parties to exercise restraint, to de-escalate tensions and desist from further attacks to safeguard civilian lives on both sides. The EU urges both sides to engage in dialogue. It is vital that India and Pakistan also live up to their obligations under international law and take all measures possible to protect civilian lives. The EU will work with all parties to de-escalate the situation."
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OUTLOOK: Price Signal Summary - Monitoring Support In GBPUSD
Apr-08 10:29
- In FX, EURUSD has pulled back from its latest high. For now, the trend condition remains bullish and a move down is considered corrective. A key resistance at 1.0955, the Mar 18 high, was breached last week, confirming a resumption of the uptrend. It paves the way for a climb towards 1.1188 next, a 0.764 projection of the Feb 28 - Mar 18 - 27 price swing. MA studies are in a bull-mode position highlighting a dominant uptrend. Initial firm support to watch lies at 1.0833, the 20-day EMA.
- GBPUSD traded sharply lower Monday, extending the retracement from the Apr 3 high. For now, the sell-off appears corrective. Price has traded below the 50-day EMA - a concern for bulls - however, MA studies are in a bull mode position and this highlights a dominant uptrend. A recovery would open 1.2899 and 1.3017, the 38.2% and 61.8% retracement of the Apr 3 - 7 sell-off . A move through Monday's 1.2709 low, would instead signal scope for a deeper retracement. This would open 1.2654 50.0% retracement of the Jan 13 - Apr 3 bull cycle.
- USDJPY maintains a bearish tone following last week’s sharp sell-off and the latest recovery is - for now - considered corrective. A resumption of the downtrend and a break of last Friday’s 144.56 low would signal scope for an extension towards 144.13, the 76.4% retracement of the Sep 16 ‘24 - Jan 10 bull leg. Initial firm resistance to watch is 149.00, the 20-day EMA. Resistance at the 50-day EMA, is at 150.33.
LOOK AHEAD: Tuesday Data Calendar: SF Fed Daly Outlook, Tsy 3Y Note Auction
Apr-08 10:25
- US Data/Speaker Calendar (prior, estimate)
- 08-Apr 0600 NFIB Small Business Optimism -- reported 97.4 vs. 100.7 prior
- 08-Apr 1130 US Tsy $70B 6W Bill auction
- 08-Apr 1300 US Tsy $58B 3Y Note auction (91282CMW8)
- 08-Apr 1400 SF Fed Daly economic outlook
US DATA: Small Business Optimism Reverses Further, Price Plans Drifting Higher
Apr-08 10:21
- The NFIB small business optimism index fell by more than expected in March, to 97.4 (cons 99.0) from 100.7 as it continues to unwind gains seen since the presidential election in November.
- It’s still above the 93.7 in October and readings around the 90 mark since mid-2022 prior to the election, but it’s nevertheless the sharpest monthly drop since Jun 2022. Further, it’s a marked contrast to small business confidence under the first Trump administration which held onto its surge higher following the 2016 election results.
- The share expecting better business conditions in the next six months fell 16pts (sharpest since Dec 2020) for its third monthly decline.
- The uncertainty index meanwhile pulled back to 96 from 104 after what had been its second highest reading in the series history (the highest being 110 in Oct ahead of the presidential election).
- Within the price details, whilst somewhat stale as they ‘only’ capture the initial China tariffs and steel & aluminum more broadly (stopping before Apr 2 “Liberation Day tariffs”), the share who increased prices compared to three months ago fell back to 26% from 32% in Feb (highest since May 2023).
- The share expecting to increase prices over the next three months meanwhile edged 1pp higher to 30% for a fresh high since Mar 2024. It steadily pulls further away from pre-pandemic averages of 21/22 readings and offers a continued headwind against a full returning to the 2% inflation target even prior to larger tariffs in the pipeline.
