Traders See a July Fed Cut as Certain Even With More Upbeat Data

(Bloomberg) -- Traders remain locked into the notion of an interest-rate cut from the Federal Reserve this month even after a suite of better-than-expected economic data Tuesday.

Fed funds futures for August indicate that the central bank’s benchmark will be around 2.085% after the July 31 policy decision. That’s more than a quarter-point below the current fed funds rate of 2.40% and just one basis point above the implied yield on the contract Monday.

Stronger-than anticipated figures on retail sales, factory output and housing helped buoy longer-end Treasury rates, but failed to shift short-end pricing as much. The 10-year yield climbed as much as 5 basis points to 2.14%, but remained entrenched within its range from the past few days.

“Retail sales won’t change the Fed’s views as they seem pretty locked into easing,” said Mike Schumacher, a strategist at Wells Fargo & Co. “But it may be causing people to reduce the chances that the Fed could cut by 50 basis point in July and how much it eases the rest of the year.”

The amount of easing priced for the whole of 2019 slipped slightly, but traders continue to expect 68 basis points of interest-rate reductions, futures pricing shows.

Traders will now be focused on an upcoming appearance by Fed Chairman Jerome Powell, who is due to speak in Paris Tuesday.

To contact the reporters on this story: Benjamin Purvis in New York at bpurvis@bloomberg.net;Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum

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