Investors are expecting banks to announce large returns of capital to shareholders after the Fed today publishes the first set of quantitative results from its annual stress tests on 38 of the largest U.S. financial institutions. Higher profits on the back of tax cuts and rising net interest income will likely boost dividends and share buybacks. A second round next week will say whether any firm failed based on qualitative grounds.

Economy

"If Trump continues to escalate trade tensions with China, we cannot rule out the possibility that China will strike back by adopting a hard-line approach targeting Dow Jones index giants," wrote China's state-controlled Global Times. "Beijing will further open up China's financial markets to the world, a move that may draw funds from U.S. stock markets as global investors increasingly add Chinese stocks to their portfolios."

The European Union is ready to engage with the U.S. to solve a trade row triggered by Washington's decision to impose metal tariffs, according to EU Trade Commissioner Cecilia Malmstrom. Germany's leading automakers, including Daimler (OTCPK:DDAIF), BMW (OTCPK:BAMXF) and Volkswagen (OTCPK:VLKAF), have have also thrown their support behind the abolition of all EU-U.S. tariffs as Daimler cut its 2018 profit guidance based on trade war forecasts.

The Bank of England is expected to keep interest rates on hold today, but may lay some groundwork for an August interest rate rise if it sees the economy turning a corner following an unusually weak start to the year. Meanwhile, the Swiss National Bank maintained its negative interest rates, citing the "fragile" exchange rate situation, while Norway's central bank reiterated plans for a September increase, keeping on track to normalize monetary policy.

Italy's new right-wing populist government is triggering fears among executives that continental Europe's third biggest economy will soon vote to leave the eurozone. According to the latest CNBC Global CFO Council quarterly survey, more than 76% of executives are "somewhat concerned" about Italy leaving the bloc, while almost 3 out of 4 respondents said the U.K. economy has already been hurt by Brexit.

Eurozone finance ministers are gathering in Luxembourg today to end the third financial rescue deal for Greece, which is due to expire on August 20. Some debt relief would leave Athens with minimal repayments until after 2030 on the €228B it still owes to the bloc. Greece is currently the most indebted country in the euro area, whose debts equal 178% of its economic output.

Index provider MSCI is reclassifying Argentina as an emerging market and will also start including Saudi Arabia in that classification. The inclusion comes amid high anticipation over the market listing of Saudi Aramco (ARMCO), as well as the approval of Argentina's $50B financing deal from the IMF, which the South American nation hopes will stabilize its currency.

"We're going to keep families together, but the border's going to be just as tough as it's been," President Trump declared ahead of a contentious House vote today on a pair of immigration bills. Besides appropriating $25B for a border wall along the southern border, the measures would provide six years of renewable legal status to Dreamers, end the diversity-visa lottery program and cut the family-based visa program.

As the diplomatic back-and-forth continues in Vienna, delegates are now increasingly positive that a deal will be reached at tomorrow's biannual meeting of OPEC countries. Iran has edged away from a threat to veto any agreement that would raise output, while Saudi Arabia put forward a plan that would add about 600K barrels a day to the global market. Crude futures -1.8% to $64.56/bbl.

Stocks

Instagram is targeting YouTube (GOOG, GOOGL) with a standalone video app called IGTV. The service gives users the ability to upload videos of up to an hour, a significant bump from 60-second video uploads and video stories of 15 seconds. Instagram (NASDAQ:FB) has also hit 1B monthly active users, announcing its first major subscriber update since it passed 800M MAUs last September.

Disney has raised its offer to purchase most of 21st Century Fox (NASDAQ:FOX) to more than $71.3B in cash and stock, topping an unsolicited offer from rival Comcast (NASDAQ:CMCSA). A Bloomberg report also suggested that Disney (NYSE:DIS) has regulatory advantage in the escalating bidding war. "We are confident we have a clear and timely path to approval," CEO Bob Iger told analysts.

The world's biggest IPO in nearly two years... Chinese smartphone maker Xiaomi (BATS:XI) has started taking orders for its upcoming listing, which aims to raise up to $6.1B for a total valuation $54.3B, or as much as $70.3B if a 15% "greenshoe" is exercised. Among the cornerstone investors are Qualcomm (NASDAQ:QCOM), China Mobile (NYSE:CHL) and China Merchants Group. Xiaomi aims to start trading in Hong Kong on July 9.

New York state is going after 3M (NYSE:MMM) and five other manufacturers for the almost $39M the government has spent to protect residents from the toxic firefighting foams made by the companies. Their use at five military and civilian airports in the state caused "extensive contamination" to nearby fish, soil and water, and increased the risk to people of immune system damage and other health problems.

Too generic to be trademarked? A U.S. appeals court has revived Dr Pepper Snapple's (NYSE:DPS) challenge to Coca-Cola's (NYSE:KO) effort to register trademarks for soft and sport drinks whose names contain the word "zero." The revival of the decade-old case comes as beverage makers try to counteract declines in U.S. soda sales since their mid-2000s peak.

The automaker may be posting "record profits," but Toyota (NYSE:TM) has reportedly begun slashing costs, starting with sales and marketing. CEO Akio Toyoda and CFO Koji Kobayashi said the savings should be plowed into emerging technology like autonomous vehicles and research that will help it keep up with new competitors. Last week, Toyota invested $1B in ride-hailing app Grab, giving the company a huge trip data goldmine.

Following opposition from antitrust authorities, BP has scrapped a proposed A$1.8B ($1.3B) takeover of Woolworths' petrol and convenience store business in Australia, which would have seen the oil major emerge as the market leader in the country. BP already supplies fuel to about 1,400 branded service stations nationwide, owning and setting fuel prices at roughly 350 of them. Woolworths operates 533 sites.

Wednesday's Key Earnings

Micron (NASDAQ:MU) +2.7% AH on memory price confidence.

Today's Markets

In Asia, Japan +0.6%. Hong Kong -1.4%. China -1.4%. India -0.3%.
In Europe, at midday, London flat. Paris -0.4%. Frankfurt -0.8%.
Futures at 6:20, Dow -0.44%. S&P -0.3%. Nasdaq -0.3%. Crude -1.8% to $64.56. Gold -0.8% to $1264.90. Bitcoin -0.3% to $6736.
Ten-year Treasury Yield -1 bps to 2.91%

Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
9:00 FHFA House Price Index
9:45 Bloomberg Consumer Comfort Index
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet