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Bank Dividends, Three Arrows Default, Nike 1Q, Lagarde - What's Moving Markets

Economy Jun 28, 2022 11:24
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By Peter Nurse -- Several U.S. banks lifted dividends after clearing their stress tests, but hedge fund Three Arrows Capital defaulted on a crypto loan. Nike disappointed with its first-quarter report, the G7 aims to put a price cap on Russian crude, while ECB’s Christine Lagarde tried to sell its new bond-buying tool. Here's what you need to know in financial markets on Tuesday, June 28.

1. U.S. banks raise dividends

The leaders in the U.S. banking sector have become clearer as four big banks hiked their dividends on Monday after clearing their annual stress test exercise last week.

The Federal Reserve gave the country's largest lenders the all-clear to redistribute excess capital to shareholders on Thursday, saying they were strong enough to easily survive a severe economic downturn.

Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) took advantage of this pronouncement to lift their dividends, while JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) kept their payout unchanged, suggesting the challenging economic environment may require more capital. 

That said, this year’s dividend hikes are not a patch on those seen in 2021, as lenders had then set aside significant sums of excess cash during the pandemic to cover loan losses that never materialized as the government helped to prevent mass bankruptcies.

2. Three Arrows Capital defaults

The turmoil in the digital currency market looks likely to claim a casualty, as Three Arrows Capital defaulted on a loan worth more than $670 million.

Crypto exchange Voyager Digital issued the notice of default on Monday to the hedge fund for its failure to pay its loan made up of 15,250 Bitcoin and 350 million USD Coin.

Three Arrows’ financial problems come in the wake of the dramatic sell-off in the digital currency market, with the overall crypto market capitalization now around $950 billion, down from $3 trillion at its peak in November last year.

In a market update, Voyager stated that it's currently exploring "legal remedies",  aiming to pursue the recovery of its funds from Three Arrows Capital.

3. Stocks set to open higher; Nike 1Q disappoints

U.S. stock markets are set to open moderately higher Tuesday, rebounding after moderate losses during the previous session as last week’s comeback rally fizzled out.

By 06:00 AM ET (1000 GMT), Dow Jones futures were up 155 points, or 0.5%, while S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.4%. 

The three cash indices posted last week their first positive week since May as investors attempted to square positions in what has been a difficult quarter as aggressive central bank tightening has prompted fears of a global recession.

The banking sector is likely to be in the spotlight Tuesday [see above], while Nike (NYSE:NKE) stock traded lower premarket after the athletic footwear manufacturer reported disappointing first-quarter revenue as it wrestled with pandemic-related disruptions in China, its most profitable market.

In terms of data, Tuesday’s main release is the Conference Board consumer confidence index for June, which is expected to fall to 100.4 from 106.4 the previous month as shoppers struggle with soaring prices.

Data on housing prices, the Federal Reserve’s Redbook, wholesale inventories and May's goods trade balance are also due for release.

4. Lagarde sells ECB’s anti-fragmentation plan 

ECB President Christine Lagarde held a press conference Tuesday during the second day of the central bank’s three-day annual summit in Portugal to sell the virtues of its new anti-fragmentation tool.

The upcoming bond-buying program will rein in a disorderly widening of bond yield spreads in the Eurozone while keeping the pressure on governments to keep their budgets in order, she said.

The European Central Bank is set to raise interest rates for the first time in a decade next month, with Lagarde warning inflation in the eurozone is "undesirably high".

These soaring prices are having an impact on consumer sentiment within the region.

German consumer sentiment is projected to fall to another record low in July, according to data from the GfK institute released earlier Tuesday, while the INSEE official statistics agency said that French consumer confidence fell more than expected in June, hitting a near nine-year low.

5. Oil climbs; G7 aims to price cap Russian crude

Crude oil prices rose Tuesday, helped by the news that China’s two largest cities, Beijing and Shanghai, both recorded no new locally-transmitted COVID infections on Monday, the first time they had no virus freely circulating since Feb. 19. 

This has raised hope that economic activity at the world’s largest crude importer will return to some sort of normalcy in the near future.

Additionally, on the supply side, both Libya and Ecuador stated that their oil production levels were being affected by civil unrest.

The leaders of the Group of Seven major industrialized nations agreed Tuesday to study potential price caps on Russian oil and gas in a bid to limit Moscow's ability to fund its invasion of Ukraine.

It’s debatable how successful such an action would be, but it could easily provoke Moscow into taking steps to further reduce crude supply to the West, potentially tightening the overall market further. 

The industry body American Petroleum Institute is set to release its weekly estimate of U.S. crude inventories later in the session. This may be studied even more carefully than usual after the Energy Information Administration confirmed that the official U.S. oil inventory report will be delayed for a second straight week by hardware failure.

By 06:00 AM ET, U.S. crude futures were up 1.6% at $111.32 a barrel, while Brent crude was up 1.7% at $112.86 a barrel.

Bank Dividends, Three Arrows Default, Nike 1Q, Lagarde - What's Moving Markets

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