Rates have popped higher this morning as the negotiations with private creditors to restructure Greek debt seem to have overcome recent snags and are close to completion

Later this week look for:

-       Canada: Retail Sales (Tue)

-        US: Richmond Fed (Tue); Pending Home Sales; FOMC Meeting (Wed); Durable Goods, New Home Sales, Leading Indicators, Initial and Continuing Jobless Claims (Thu); Q4 GDP, Consumer Sentiment (Fri)

The bond market is selling off a a little this morning, somewhat contrary to the tone of the data.

In Canada, Inflation for December was released this morning and was much weaker than expected. The CPI declined -0.6% m/m (-0.2% exp.) to register a +2.3% y/y reading (+2.7% exp.), while the Core CPI used by the Bank of Canada declined -0.5% m/m (-0.2% exp.) to register a +1.9% y/y reading (+1.9% exp.). Clothing & Footwear, Transportation, Energy & Gasoline were among the drivers of this month over month deflation.

Staying in Canada, Wholesale Sales growth of -0.4% in November was also weaker than the +0.5% print that the market had forecast.

There is no major data out in the US just yet (Existing Home Sales due at 10am EST) but equity markets have opened flat / slightly lower on weak earnings reports.

Normally the market would be rallying given the above, so the selloff is probably little more than a bit of profit-taking.  

The bond market has sold off a little this morning on the back of mixed data out of the US. Inflation numbers for December (core of +2.2% yoy) were low and in line with expectations, while Housing Starts (also December) of 657k were well below the 680k expected and a fraction of the average level of nearly 1.5MM over the past 40+ years.

The above are, of course, neutral to slightly negative, but risk appetite has received a big boost this morning by the US Initial Jobless Claims number for last week, which – at 352,000 – was well below the 384,000 the market expected. This reading has now remained below 400,000 for several months, and is the lowest such reading since April 2008.

For completeness, Canadian Manufacturing Shipemtns for November  grew slightly more than expected.

Keep your eyes open for Canadian CPI numbers out tomorrow morning as they give us a refresh on how much wiggle room Mark Carney has to keep overnight rates low or even take them lower if need be.

As expected, the Bank of Canada held its overnight rate steady at 1%, citing an uncertain global economic backdrop an expectations that recent growth in the US will moderate in the months ahead. Should the economic picture deteriorate further, the Bank of Canada has the flexibility to decrease its overnight rate, and in fact, markets are actually assigning a very high probability of a 25bp cut in the overnight rate at some point in 2012.

Notwithstanding the downward pressures on short rates, the bond market has sold off a bit this morning at the five and ten year maturities, taking yields higher. Stronger than expected Chinese GDP growth for 2011 (8.9% vs. 8.7% exp.) and a good reading in the Empire Manufacturing Index in the US providing the impetus.

The bond market has rallied somewhat this morning, pushing yields down by several basis points as word out of Europe is that a downgrade of several European nations’ credit ratings by Standard & Poors is ‘imminent’. While Germany isn’t expected to be among the downgrades, the market is concerned that France could lose its AAA-rating.

We should all be used to European events leading markets by now, and this rumour has caused a shift away from riskier assets in spite of positive news out of the US (e.g. higher consumer confidence reading this morning) and Canada (strong trade surplus where a modest deficit had been expected).

Europe of course, will continue to influence markets, but on the data front here in North America watch for the following next week:

Canada: BoC Policy Announcement (Tue); Manufacturing Shipments (Thu); CPI, Wholesale Trade (Fri)

USA: Empire State Manufacturing Index (Tue); Industrial Production & Capacity Utilization (Wed); CPI, Housing Starts, Building Permits, Philadelphia Fed, Initial and Continuing Jobless Claims (Thu); Existing Home Sales (Fri)

Strap yourselves in because it’s going to be interesting to watch how the market synthesizes generally downbeat news out of Europe with generally positive economic results out of North America.

Yields have popped a bit higher this morning as a slightly more positive global economic tone encourages flows to riskier assets.

Key to this is growing speculation that China will ease monetary and fiscal policies in early 2012 to counteract a bit of a deceleration there, while a bit closer to home, Alcoa kicked off earnings season with better than expected results.

Finally, Canadian Housing Starts for December were also better than expected: 200k vs. 185.5k, and the November print was revised a bit higher also.

Key data releases later in the week include:

-          US: Retail Sales, Business Inventories, Initial & Continuing Jobless Claims (Thu); Trade Balance, Consumer Sentiment (Fri)

-          Canada: Trade Balance (Fri)

Rates are slightly lower in spite of generally positive news out of the US this morning. Yesterday’s ADP Private Employment Report blowout for December of 325,000 new private sector jobs was followed up with a +200,000 jobs print in the Nonfarm Payrolls report, well ahead of the 155,000 published consensus. Additionally, the Unemployment Rate fell from 8.7% to 8.5%. Why would rates fall on such good news? Perhaps the market was hoping for something better given yesterday’s ADP numbers. Whatever the case, the trend is that the US is printing better numbers than at any point during the ‘recovery’, although in absolute terms those numbers are not all that impressive.

In Canada, the Employment Report for December continued the recent trend of being somewhat underwhelming. Net change in employment of +17.5k fell short of expectations (+20k), although the headline number masks additional weakness, as full time employment fell 25.5k while part time employment rose +43k. This had the net effect of pushing our Unemployment Rate up from 7.4% to 7.5%. 

Rates have popped several basis points higher this morning on positive construction data from the US and some positive news out of Europe.

US Housing Starts and Building Permits for November were well above expectations, while a measure of Business Confidence in Germany was surprisingly robust.

Also, the Canadian CPI numbers for November were released this morning, coming in-line with expectations. Headline inflation of 2.9% was steady from October, and ‘Core’ inflation of 2.1% was below the 2.2% the market had expected. 

Rates have bounced around quite a bit in the last 24 hours.

Beginning early Monday afternoon, the bond market began to rally sharply as word came out that S&P were going to place 15 (out of 17) eurozone sovereigns on negative watch for possible downgrade, including all six AAA-rated nations (Germany, France, Austria, Netherlands, Finland, and Luxembourg). S&P is apparently concerned about the impact of systemic stress within the eurozone on economic growth, although the downgrades themselves are very likely to amplify such stress, possibly leading to a negative feedback loop. A euro summit is taking place this coming weekend where Germany and France will push forward a plan to enhance governance and oversight rules to better enforce the Maastricht Treaty criteria. As mentioned before, this is the best plan I’ve heard on how to tackle this ongoing problem and likely a precondition for popular German support of broader bailout measures.

This morning the bond market in Canada reversed course and began to sell off somewhat as BoC Governor Mark Carney held the overnight rate at 1.0% yet again – in line with expectations – citing concerns about Europe and global growth, while at the same time suggested he is not willing to lower the rate either, citing the existence of considerable monetary stimulus in Canada, momentum in household spending and strong business investment.

Also, building permits in Canada increased by 11.9% MoM (+1.6% expected) in October.

Rates have been bouncing around a relatively compact range this morning as a slew of data and other information are digested.

Data in the US included:

-          +120k jobs in November (+125k expected); October revised from +80k to +100k

-          Unemployment rate down from 9.0% to 8.6% (9.0% was expected)

-          Underemployment Rate (Unemployed + part-time workers who are looking for full-time work) down from 16.2% to 15.6%

How is it that jobs growth is basically in line with expectations but the unemployment rate is 0.4% lower than expected? Trick question because the two are not based on the same information. The jobs number is based on the “Establishment Survey” – conducted by calling businesses (mainly larger ones) to determine changes in employment, whereas the unemployment rate is based on the “Household Survey” – conducted by calling individuals to determine employment activity.

This month, the houshold survey suggests that 278k jobs were created, and also that the labour force shrunk by 300k. Together, these have cause the outsized change in the unemployment rate.

North of the border, the jobs picture was a bit hairier. Canada followed up October’s 54,000 job losses by shedding another 18,600 jobs in November, with 34,600 f/t jobs created and 53,300 p/t jobs lost. The reality is that a f/t job is more valuable than a p/t one so the result isn’t as bad as the headline would suggest. Nontheless, the above cause the unemployment rate to rise to 7.4% from 7.3%.

Finally, Germany continues to stick to its guns in Europe, denying the market the easy fix of jointly issued “Eurobonds” or quantitative easing by the ECB, in favour of the creation of a legally-enforceable fiscal union for the eurozone. Quite frankly, this is the only solution I’ve heard of that can actually put a lid on the irresponsible budgets that have created the current crisis of confidence.