Rates have fallen a few basis points this morning as the Canadian bond market rallied on lower than expected inflation numbers for June. The Consumer Price Index YoY rise of 3.1% was materially lower than the expected 3.6%, while the Core CPI rose 1.3% during June (1.9% expected). The Bank of Canada targets Core CPI growth of 2.0% so the latest reading gives the Bank more wiggle room.

The bond market has rallied sharply this morning. There was a big miss in the weekly US Initial Jobless Claims print: 412k vs. the expected 380k. This number had only recently dipped below 400k and was a large driver behind the rhetoric that the US labour market is finally on the mend so this uptick is seen as a big disappointment.

In Canada, Manufacturing Sales Growth for February was also weak at -1.5% (-0.5% exp.).

Topping off the reasons for the swift return of risk aversion to the markets are renewed concerns in Europe over peripheral EU countries’ ability to repay debts. The (shocking) discovery that austere government budgets will not stimulate the economic activity necessary to repay national debts has led German Finance Minister Wolfgang Schaeuble to state that Greece may need to ‘renegotiate’ its debt burden if an audit in June questions its ability to pay creditors. Greek 5-year yields are almost 15% and Portuguese 5yr yields are north of 10%.

There is a busy end to the week on Friday with US data including: Consumer Price Index, Industrial Production & Capacity Utilization, and Consumer Sentiment.