Fed decision ahead, Goldman Sachs cuts oil outlook - what's moving markets

Investors prepare for the Federal Reserve's latest interest rate decision on Wednesday, and await the release of major new U.S. inflation data tomorrow. Meanwhile, Goldman Sachs analysts slash their target price for Brent crude yet again as warning signs flash around the post-pandemic recovery of top oil importer China.

The Federal Reserve is gearing up to unveil its latest interest rate decision this week, with investors widely betting that the U.S. central bank will push pause on a long-running policy tightening cycle.

According to Investing.com's Fed Rate Monitor Tool, there is a more than 79% chance that the rate-setting Federal Open Market Committee will vote to keep borrowing costs steady after its two-day meeting set to start tomorrow.

The May labor market report, which has played a central role in the Fed's decision-making process, pointed to a gradual acceleration in unemployment in the world's largest economy. The increase could soften the pressure on businesses to bump up wages, further assisting the Fed in its bid to bring inflation back down to its 2% target.

But there is still an outside chance that the bank could decide to lift rates yet again, this time by 25 basis points. Much will likely depend on the latest consumer price index due out on Tuesday. Economists predict that the reading will rise by 4.1% on an annual basis last month, cooling from the prior level of 4.9% in April.

Stock futures on Wall Street pointed higher on Monday as traders gauged the prospect of a pause in Fed rate hikes and eyed the upcoming release of key U.S. inflation data.

At 05:00 ET (09:00 GMT), the Dow futures contract gained 57 points or 0.17%, S&P 500 futures added 14 points or 0.33%, and Nasdaq 100 futures rose by 77 points or 0.53%.

The main indices ended the prior session in the green, highlighted by the benchmark S&P 500 edging closer to its highest level since August. The broad-based Dow Jones Industrial Average also inched up by 0.13% and the tech-heavy Nasdaq Composite climbed 0.16%.

Dealmaking was subdued on Friday, with daily trading volumes hitting its lowest mark since last October, in a sign that investors were keeping to the sidelines ahead of the Fed's much-anticipated announcement.

Goldman Sachs has lowered its price estimate for Brent crude to under $90 per barrel by the end of 2023 after two previous reductions to its forecast in the past six months.

As a result, worries abound that China's nascent recovery from harsh COVID-era restrictions that started in the first quarter may be waning. This would be a major development for oil markets, which had been expecting the country's post-pandemic rebound to fuel a surge in demand this year.

Elsewhere on Monday, Iran's supreme leader said Tehran was open to a deal with the West over its nuclear program. The statement suggested that the market may potentially be flooded with additional supply if sanctions on Iranian crude exports are lifted, weighing on oil prices.

By 05:03 ET, U.S crude futures dropped by 2.76% to $68.23 a barrel, while the Brent contract fell by 2.43% to $72.97 per barrel.

Analysts at Goldman Sachs also published a fresh take on the outlook for the sputtering real estate sector in China, predicting that the industry will likely see a so-called "L-shaped recovery."

This would mean that the property market, which has been hit in recent years by a series of defaults and weak homebuyer demand, is expected to see only a slow rebound.

Goldman flagged that such a trend could further stymie activity in the world's second-largest economy. The property sector accounted for about a quarter of China's overall gross domestic product as recently as 2021.

The investment bank's note took a toll on big Chinese real estate firms on Monday, with Hong Kong-listed Country Garden Holdings Company Ltd (HK:2007), Poly Property Group Co Ltd (HK:0119), Guangzhou R&F Properties Co Ltd (HK:2777), and Sunac China Holdings Ltd (HK:1918) all posting losses.

UBS Group AG (SIX:UBSG) announced that it has formally completed its takeover of smaller rival Credit Suisse Group AG (SIX:CSGN), creating a Swiss banking behemoth responsible for overseeing a $1.6 trillion balance sheet.

Executives at UBS confirmed the deal in a series of open letters published by media outlets, saying that the tie-up would lead to both opportunities and challenges. But they emphasized that the entity will enjoy a boost in clout, particularly in wealth management, which will help solidify Switzerland's place as a major hub of the finance industry.

The takeover was the product of government-sponsored negotiations in March, when global bank ructions hit Credit Suisse and threatened the stability of the Swiss financial system. UBS has worked quickly to seal the deal, bringing it to a close in less than three months, as it hopes to shore up confidence in Credit Suisse's clients and employees.