Stocks advance as markets focus on rate calls

Major stock markets mostly advanced Monday, with attention focused on central banks this week and their latest decisions over interest rates as inflation remains high.

After a day of advances in European markets, major indices in New York ended higher too following an entire session in positive territory.

The US Federal Reserve is widely expected on Wednesday to pause its campaign of interest rate increases to give policymakers more time to assess the economic impact of existing hikes and recent banking stresses.

A day later, the European Central Bank will almost certainly deliver another interest rate hike, pressing ahead with its fight against inflation even as the eurozone slides into a recession, according to analysts.

Policy announcements from the central banks of Japan and China are also due this week, after Canada and Australia unveiled rate hikes last week.

The Fed decision will come a day after the release of US consumer price inflation data, which could play a major role in officials' thinking.

"This week will be dominated by an inflation release and whether the Federal Reserve's interest rate decision will be informed by its findings," said Richard Hunter, head of markets at Interactive Investor.

Stocks globally have enjoyed a broadly strong run this month on hopes the US central bank will decide against an 11th successive hike.

For now, the forecast is for the Fed to hold this month but announce another hike in July.

Analyst Patrick O'Hare at Briefing.com said that the market has priced in only a 20 percent possibility of a rate hike, by a quarter of a percentage point.

"A hot CPI report on Tuesday could change that thinking, but for now, no change by the Fed is the default expectation," said O'Hare.

He noted that the Fed will also release an updated summary of economic projections that contains estimates on policy rates.

Analysts say Fed policymakers face a finely balanced choice.

"With inflation still well over double the target rate for all central banks, can the US Federal Reserve really afford the luxury of a pause, or are they right to be careful given the deflation coming out of China?" said Michael Hewson at CMC Markets.

"Growth is already slowing in China post-Covid, and in Europe, Germany and the EU are already in a technical recession, while the UK probably isn't too far behind," he added.

Worries about a possible recession in the United States -- as well as China's economic weakness -- and the impact that could have on demand weighed on oil prices Monday, extending Friday's losses.

The price of the main US oil contract, WTI, slumped more than four percent to under $68 per barrel.

The drop came even after Saudi Arabia's surprise decision this month to cut output by one million barrels a day next month, and possibly for longer, in a bid to lift prices.

"Markets appear to be more concerned about economic conditions in China, the sputtering rebound there and downgrades to demand by various investment banks," said Hewson.

New York - Dow: UP 0.6 percent at 34,066.33 (close)

New York - S&P 500: UP 0.9 percent at 4,338,93 (close)

New York - Nasdaq: UP 1.5 percent at 13,461.92 (close)

London - FTSE 100: UP 0.1 percent at 7,570.69 (close)

Frankfurt - DAX: UP 0.9 percent at 16,097.87 (close)

Paris - CAC 40: UP 0.5 percent at 7,250.35 (close)

EURO STOXX 50: UP 0.6 percent at 4,316.49 (close)

Tokyo - Nikkei 225: UP 0.5 percent at 32,434.00 (close)

Hong Kong - Hang Seng Index: UP 0.1 percent at 19,404.31 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,228.83 (close)

Euro/dollar: UP at $1.0762 from $1.0749 on Friday

Pound/dollar: DOWN at $1.2510 from $1.2572

Dollar/yen: UP at 139.56 yen from 139.40 yen

West Texas Intermediate: DOWN 4.3 percent at $67.12 per barrel

Brent North Sea crude: DOWN 3.9 percent at $71.84 per barrel