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Companies Will Feed the Yield-Hungry Beast in September

By Ben Eisen

Morning MoneyBeat is the Journal's pre-market primer. To receive this morning newsletter via email, click here: http://on.wsj.com/MoneyBeatUSSignup

Market Snap at Mon, 29 Aug 2016 08:18:33 -0400 ET

S&P 500 Futures 0.03%

↑ 2169.25

DJIA Futures -0.01%

↓ 18379

U.S. 10 Year 6/32

↓ 1.613%

WSJ Dollar Index 0.28%

↑ 86.73

Crude Oil -1.22%

↓ $47.06

Gold -0.27%

↓ $1322.30

Europe

Asia

FTSE 100

0.31%

Nikkei 225

2.3%

DAX

-0.62%

Hang Seng

-0.38%

CAC 40

-0.82%

Shanghai

-0.01%

Overnight Developments

Stocks struggled and the dollar continued to strengthen Monday amid growing conviction that the Federal Reserve will raise short-term interest rates this year.

Futures pointed to a flat opening for the S&P 500, following Wall Street's worst week since the end of June.

The Stoxx Europe 600 inched down 0.4% following declines in Asia. The auto sector led losses, while markets in the U.K. were closed for a holiday.

The dollar rose to a two-week high against the yen in Asian trade and was last up 0.3% against the yen at ¥102.1580. Bank of Japan Gov. Haruhiko Kuroda said Saturday that the central bank would take additional monetary easing measures "without hesitation" to achieve its inflation target.

The Nikkei Stock Average rose 2.3%, as a weaker yen tends to help exporters such as auto and electronics parts makers.

Shares elsewhere in Asia fell, however, with Hong Kong's Hang Seng down 0.4% and Australia's S&P ASX 200 down 0.8%. The Shanghai Composite Index was flat.

The Breakfast Briefing

It's a great time to be a company borrowing money.

Corporate treasurers are likely to remind us of that after Labor Day when they pick up the pace of debt issuance. U.S. debt sales are expected to total $120 billion in September, the most since May, and up from $100 billion in August, according to projections from Bank of America Merrill Lynch.

The premium over super-safe Treasurys that high-grade U.S. companies pay to borrow dropped 0.1 percentage point this month, adding to a slide in such spreads after the British vote to leave the European Union in June, according to Merrill Lynch analysts. That's making it cheaper for companies to issue debt, extending a Fed-induced period of cheap financing further yet.

Aside from the cheap borrowing costs, some corporate borrowers may also be pushed into the long-term bond market if they have trouble issuing short-term commercial paper due to pending money market reforms, Merrill said.

Demand continues to remain robust. One reason for that: stimulus programs in other countries, such as the Bank of England's August move to buy corporate bonds, are crowding out investors and pushing them into the U.S. market. All told, high-grade bond prices are up 9.4% this year while junk bonds are up 14%, according to Barclays index data.

"We do expect the acceleration in supply to be met with accelerating demand, as European investors return from summer vacations," said the Merrill Lynch analysts, led by Hans Mikkelsen.

While high-grade U.S. companies have issued record amount of corporate debt in recent years, the market shows little sign of running out steam. We're likely to see the brisk pace of issuance continue once the vacation season ends.

Daily Factoid

On this day in 2005, Hurricane Katrina makes landfall near New Orleans.

MoneyBeat Podcast

Play Podcast →

Financial Food Fight: First, the MoneyBeat crew dissects the market reaction to Fed Chair Janet Yellen's speech at the annual Jackson Hole summit in Wyoming. Then, a look at "Canseconomics," and how former Major League Baseball star Jose Canseco became one of Twitter's favorite financial analysts.

Tweet of the Day

If we stop casting Kevin Bacon, will we all start drifting apart until no one knows anyone anymore? -- Mark Jeffrey @markjeffrey

Key Events

8:30 a.m.: Personal Income and Outlays for July [Prior: 0.1%]

The Commerce Department report presents the latest reading of the personal-consumption expenditures price index, the Federal Reserve's preferred gauge of inflation. With little signs of inflation picking up, by this measure, Fed policy makers have had the latitude to refrain from raising interest rates this year. Another soft inflation reading, with prices rising just 0.1% for the month, is expected.

10:30 a.m.: Dallas Fed Manufacturing Survey for August [Prior:-1.4]

Manufacturing activity across the Lone Star state continued to contract in July, highlighting the lasting effects of the energy price collapse on production across the oil-focused state.

Stocks to Watch

Mylan NV was up 2.1% before the bell after it said early Monday that it would launch a generic alternative to EpiPen at a 50% discount after being criticized for dramatically raising the price of the lifesaving drug.

Herbalife Ltd. is up 2.5% in early trading on the news that major shareholder Carl Icahn bought more shares in on Friday. It's an apparent about-face for the investor, as the Journal reported last week that he had recently weighed selling his stake in the controversial nutritional-products maker.

Caesars Entertainment Corp., the parent company of the bankrupt Caesars Entertainment Operating Co., is down 12% in premarket trading after a judge said Friday that the company can't shield itself from about $11 billion in claims from bondholders.

Today's Video

Play Video →

Atlanta Federal Reserve president Dennis Lockhart explains to WSJ chief economics correspondent Jon Hilsenrath that he is ready to discuss raising interest rates given that the domestic and global economy has improved.

Number of the Day

60.5 million

Florida will produce 60.5 million boxes of oranges this year, according to independent forecaster Elizabeth Steger, the smallest harvest in 52 years, amid falling consumer demand and rampant disease in orange groves.

Must Reads

Fed's Negative Rates Aversion Highlights Stimulus Limits: Fed officials don't think negative rates are needed in the U.S. because the economy and job market are improving and they are hoping they will never have to use them in the future given their uncertainty about whether the policy works.

Yellen Says Fed Could Expand Its Use of Bond Purchases: The central bank's main tool for fighting the next recession could be bond-purchase programs, Federal Reserve Chairwoman Janet Yellen said.

When Economic Doomsayers Stumble: It's early, but data so far suggest the British decision to leave the European Union could be another example of a recurring phenomenon: expert predictions of dire consequences to political decisions that end up proving overheated.

Two Regional Bank Chiefs Doubt Fed Would Raise Rates Twice This Year: Two Fed regional bank presidents played down the likelihood of two rate increases this year beginning as soon as next month, after the U.S. central bank's second-in-command floated the idea.

The Price of the Calm After the Storm: Markets are calm this August. Policy makers have ensured that, but distortions are rife.

Why the Math Doesn't Work for Today's Market: With interest rates low and stock valuations distorted, how much cash companies give back to investors is more crucial than ever.

Janet Yellen Cries Wolf: The Fed chairwoman tries to convince the market that a rate rise is coming, but investors aren't listening.

Which State Is a Big Renewable Energy Pioneer? Texas: The Lone Star state has added more wind-based capacity than any other, as part of an aggressive energy diversification that seeks to skirt ideological land mines.

Anemic IPO Market Poised for Rebound: A flood of share debuts is expected to invigorate the listless IPO market after the coming Labor Day holiday. But the revival may be short-lived as political uncertainty rises ahead of the presidential election.