The Fed will be in the spotlight this week, as markets are now all but certain that the central bank will slash interest rates at the end of its latest two-day gathering on Wednesday.

Underpinned by signs of a softening U.S. labor market, policymakers are widely anticipated to back the first rate cut since an easing cycle was paused in December. Bringing down rates can, in theory, help spur investment and hiring.

However, a reduction can risk pushing up inflationary pressures at the same time. Last week, a monthly U.S. consumer price index reading accelerated slightly due to an uptick in housing and food costs, a potential indication of sticky inflation.

Yet a separate gauge displaying a rise in weekly initial jobless claims likely kept a Fed rate cut on track. There is now a roughly 95% probability that borrowing costs are lowered by 25 basis points, as well as about a 5% chance of a deeper half-point drawdown, according to CME's FedWatch Tool. The Fed's target rate currently stands at a range of 4.25% to 4.5%.

"A cooling economy and weakening jobs market will help to dampen inflation tied to tariffs, and the Fed is now in a position to resume loosening policy from 'somewhat restrictive' territory towards a neutral footing," analysts at ING said in a note.

3. U.S.-China officials meet in Madrid

U.S. and China officials are set to meet again after reportedly made little progress in the first day of a fresh round discussions on Sunday.

Anticipation for the talks in Madrid has been subdued, particularly around a breakthrough on longstanding trade tensions between the world's two largest economies.

Observers are instead expecting the negotiations to conclude with an extension to a deadline for short-form video app TikTok which is owned by China's ByteDance to divest its U.S. operations. At the moment, if ByteDance does not sell the unit by September 17, TikTok faces a shutdown in the U.S.

Citing a source familiar with the matter, Reuters reported that President Donald Trump is likely to extend the deadline.

Bessent told reporters that both sides would "start again in the morning" after they met for just six hours on Sunday. Meanwhile, China's embassy in Madrid informed reporters that a concluding news conference could take place on Monday, suggesting that the talks could wrap up soon. Bessent is set to head to London on Tuesday, prior to Trump's state visit with King Charles later in the week.

4. China launches probe into U.S. chip policy

Before the start of the negotiations in Spain, China's Ministry of Commerce opened an anti-discrimination probe into U.S. policy over the trade of chips.

Beijing will be looking into whether Washington has unfairly discriminated against Chinese companies through a number of restrictions -- like export controls -- in recent years. The ministry argued that these moves have been designed to stem China's development of cutting-edge computing and artificial intelligence capabilities.

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A separate investigation was also initiated into suspected dumping of U.S. analog chips in everyday devices like temperature sensors and hearing aids. In a note, analysts at Vital Knowledge said investors should "expect pressure" on Monday in analog chip stocks such as Texas Instruments, Analog Devices, and NXP Semiconductors.

5. Oil inches up

Oil prices rose, extending recent gains on the back of potential disruptions in Russian supply following Ukrainian drone attacks on Moscow's energy infrastructure.

At 03:27 ET, Brent futures climbed 0.5% to $67.29 a barrel, and U.S. West Texas Intermediate crude futures rose 0.1% to $62.76 a barrel.

Both contracts gained more than 1% last week as Ukraine stepped up attacks on Russian oil infrastructure, including the largest oil exporting terminal Primorsk and the Kirishinefteorgsintez refinery, one of the two largest refineries in Russia.

The strikes have the potential to take large amounts of Russian oil production offline, and could herald potential supply disruptions, especially for Moscow's top markets India and

Source: Investing.com