U.S. stocks slipped Monday with investors remaining cautious ahead of policy decisions from two of the world’s major central banks this week.
The Dow Jones Industrial Average declined 51 points, or 0.3%, to 18520 shortly after the opening bell. The S&P 500 dropped 0.3%, and the Nasdaq Composite fell 0.1%.
The slowest trading week of 2016 left the S&P 500 at a fresh record high Friday ahead of this week’s U.S. Federal Reserve and Bank of Japan policy decisions.
Recent upbeat economic data from the U.S. have increased expectations that policy makers could raise interest rates this year.​Some investors believe fears that a stronger dollar would rattle global markets—increasing debt-servicing costs in emerging economies— and will dissuade rate-setters at the Fed from acting before December.
By contrast, pressure is building up on BOJ Governor Haruhiko Kuroda to deliver a new round of monetary stimulus on Friday. The yen traded lower against most major currencies on Monday.
Many analysts expect Japan will eventually enable the BOJ to either finance government spending or directly inject cash into the economy, a policy known as “helicopter money,” even though Mr. Kuroda has so far ruled out this possibility. While few expect such an action as early as Friday, failure to deliver an adequately sizable stimulus could cause the yen to shoot higher and domestic share prices to plunge.
“The Japanese economy needs stimulus and it will come in the form of monetary policy now and fiscal policy later in the year,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, who called the BOJ’s meeting this week “quite critical” for markets.
Fears that the Japanese central bank might under-deliver curbed investor appetite for Asian stocks before the European market open. The Nikkei Stock Average and the Shanghai Composite Index were little changed.
Investors have navigated carefully during the last two weeks, waiting for new economic data to shed light on the impact Brexit will have on global markets.
The Stoxx Europe 600 rose 0.2% and the FTSE 100 was down less than 0.1%.
On Monday, sovereign 10-year bond yields across the developed world edged up slightly, but remain below where they were before the British vote in June, a sign that markets have recovered from the initial shock of the referendum result but remain cautious about the economic outlook.
Markets are in “kind of a purgatory, somewhere in the middle,” said David Vickers, senior portfolio manager at Russell Investments. “We think we’ve largely bottomed in yields but we don’t think we are about to go on the uptrack. We are here to stay for a while.”
A testament to this no-man’s-land for markets, the price of gold—a well-known haven against risk—inched down on Monday, but remains close to the two-year high it hit in earlier this month.
So far, early business surveys suggest the U.K. economy could take a big hit because of its decision to exit the EU. A poll released Monday by the Confederation of British Industry showed optimism about the general business situation among British industrial companies in July was the lowest since January 2009, despite the firms reporting relatively robust sales in the second quarter of the year.
