Building on yesterday's momentum, U.S. stock index futures are climbing higher after the Dow Jones pierced 25K and the Nasdaq continued to flex its muscles. Investor confidence was propelled by ECB comments suggesting the winding down of QE, as well as Italy's new prime minister winning a second vote of confidence and Spain's new leader naming a cabinet. Geopolitical concerns are again in focus, however, amid Brexit negotiations and an upcoming G7 summit (see below).

Economy

France has joined Germany in warning President Trump that it won't sign a joint communique during this weekend's G7 summit without major concessions from the U.S. Those include progress on tariffs, the Iran nuclear agreement and the Paris climate accord. Trump will not back down from the tough line he has taken on trade, according to top economic adviser Larry Kudlow, setting up the showdown in Quebec.

Retaliatory tariffs? The EU "expects to conclude the relevant procedure in coordination with member states before the end of June," European Commission Vice-President Maros Sefcovic told a news briefing. From blue jeans to motorbikes and whiskey, the hit list of U.S. products targeted for tariffs reads like a catalog of emblematic American exports.

Brexit tensions in Theresa May's cabinet are at a boiling point, with plans for a "backstop" customs option - which centers on how to manage the Northern Ireland border - due to be published today. Brexiteers have insisted on a legally binding time limit, as well as the option for the U.K. to unilaterally withdraw from the arrangement, but the Downing Street proposal is believed to only include a vague promise.

A disappointing start to 2018... Updated data has confirmed eurozone economic growth cooled in Q1 as the ECB prepares for a pivotal meeting next week where the central bank will discuss the future of its bond-buying program. GDP growth slowed to 2.5% on an annualized basis, according to Eurostat's third reading, marking the weakest pace since the third quarter of 2016.

Russia's economy is "moving in the right direction," Vladimir Putin said during his annual question and answer session with citizens as he begins his fourth term as president. "What is the basis for saying this? We have started on the trajectory towards robust economic growth in Russia. Yes, this growth is humble, small, but it is also not a fall. Growth was at 1.5% last year."

China's forex reserves fell $14.23B to $3.111T in May, compared with a drop of $17.97B in April, as the dollar rebounded strongly and regulators took small steps to increase cross-border use of the yuan. Capital flight was seen as a major risk for China at the start of 2017, but a combination of tighter capital controls and a faltering greenback helped the local currency stage a strong turnaround.

"We are encouraging all public companies to consider moving away from providing quarterly earnings-per-share guidance," write Jamie Dimon and Warren Buffett, along with the Business Roundtable, an association of nearly 200 CEOs from major U.S. companies. In our experience, it often "leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability," resulting in less "technology spending, hiring, and research and development."

Stocks

The EU's competition commissioner, Margrethe Vestager, is set to hit Google (GOOG, GOOGL) with a financial penalty within weeks for abusing its dominance through Android OS, FT reports. The penalty is unknown but could range to 10% of Alphabet's global turnover, resulting in a fine of up to $11B (though it would likely be at the lower end of the range).

There is little Congress can do to stop President Trump if he wants to relax penalties on ZTE (OTC:ZTCOY), despite strong bipartisan opposition to easing restrictions on China's No. 2 telecom equipment maker. Sanctions laws that affect ZTE allow any president to waive them if he feels it is necessary for national security reasons, while the Constitution gives presidents broad control of foreign policy matters.

Fujifilm may have no choice but to give up on a merger with Xerox (NYSE:XRX) if there is no progress in talks. "I don't have a specific deadline in mind, but it should normally be around six months," CEO Shigetaka Komori said in his first media session since Fujifilm (OTCPK:FUJIY) scrapped the $6.1B deal. "If we have nothing by then, it can't be helped."

The Teamsters union and UPS could be heading toward the largest U.S. strike in decades if a deal is not reached before their current labor contract expires on August 1. UPS employs 260K Teamsters, and has added 40,000 union members since 2014. The shipments UPS transports equal an estimated 6% of the nation's GDP, which means a labor dispute could disrupt the U.S. economy.

The Canadian Senate is likely to green light a sweeping measure on cannabis legalization today after years of quiet study and discussion. After House approval, the government expects to launch legal sales as soon as 10 to 12 weeks from now. Recreational marijuana sales in Canada could be worth $3.3B by 2027, in part because businesses will find it easier to work on a national level (click the link to see related tickers).

Kentucky Faux Chicken? KFC (NYSE:YUM) is devising a fake meat version with the colonel's original recipe of 11 herbs and spices as new British government guidelines aim to reduce calories by 20% per serving by 2025. McDonald's (NYSE:MCD) last year added a soybean-based McVegan burger in Sweden and Finland, and also sells its Vegetable Deluxe burger across the U.K.

The truck unit at Daimler (OTCPK:DDAIF) has unveiled two battery-powered models for the U.S. market, bolstering its bid to fend off Tesla (NASDAQ:TSLA), Volvo (OTCPK:VOLVY) and Volkswagen (OTCPK:VLKAY) in the race to electrify big rigs. The Freightliner eCascadia is an 18-wheeler with a 250-mile range, aimed for regional distribution and port services, while the Freightliner eM2 106, with a range of up to 230 miles, is designed for local delivery.

Financed by Google (GOOG, GOOGL) founder Larry Page, Kitty Hawk's flying car is now available for pre-order. The Flyer is powered by batteries that last up to 20 minutes and is operated by joystick that controls 10 independent lift fans. It also falls under the FAA's rules for ultralight aircraft, meaning no pilot's license is needed so long as it's flown over water or "uncongested areas."

Hypersonic weapons are among the technologies emphasized in the Senate's newly released $716B defense authorization bill for FY 2019. But as Russia and China continue their march toward fielding hypersonics, the Pentagon and its largest weapons supplier have shared limited details about their own efforts. Lockheed (NYSE:LMT) will be responsible for designing, engineering, integration and logistical support on the $928M U.S. hypersonic project.

Today's Markets

In Asia, Japan +0.9%. Hong Kong +0.8%. China -0.2%. India +0.8%.
In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.2%. S&P +0.2%. Nasdaq +0.3%. Crude +0.6% to $65.11. Gold +0.1% to $1302.70. Bitcoin +0.4% to $7684.
Ten-year Treasury Yield +2 bps to 2.99%

Today's Economic Calendar

Chain Store Sales
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
3:00 PM Consumer Credit
4:30 PM Money Supply
4:30 PM Fed Balance Sheet