US retail sales came in slightly ahead of expectations as investors ramp up bets that the Federal Reserve will wave through a big rate cut on Thursday.
Retail sales volumes rose 0.1 per cent in August, according to figures released this afternoon, beating the 0.2 per cent decline expected by economists.
July’s figures were also revised up to show a 1.1 per cent gain having previously been estimated to be 1.0 per cent increase.
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The figures suggest that the world’s largest economy is still relatively solid even if growth rates have slowed from the blockbuster performance over the past couple of years.
The data comes just a day before the Fed’s eagerly awaited interest rate decision. Markets are certain that rate-setters will sign off on the first rate cut since the pandemic, but are divided on the size of the cut.
Over the last few days, traders have been ramping up bets that the Fed will cut rates by 50 basis points, rather than opt for a smaller cut.
According to CME’s Fedwatch, there is now a 67 per cent chance that the Fed will opt for a 50 basis point cut, up from just 34 per cent last week. Expectations were little changed after the retail figures.
“Rarely have market expectations been so torn, so close to a FOMC meeting,” Seema Shah, chief global strategist at Principal Asset Management.
Shah said that the decision was complicated by “conflicting signals”, with economic activity still fairly solid even amid signs of a weakening labour market.
While Kallum Pickering, chief economist at Peel Hunt, recognised that the odds of a larger rate cut had increased, he still backed a 25 basis point cut.
“50bp cuts are usually reserved for when there is clear evidence of an unfolding recession, going big risks sending the wrong signal and could spook already nervous markets,” he said.