The only hard data out so far this morning in North America is the US weekly Initial and Continuing Jobless Claims report out of the US. The Initial Jobless Claims number – which has caused considerable anxiety in recent months as it continued to come in at a level higher than expected – appears to have reversed course this week. The actual reading of 398k compares favourably against expectations for a 415k reading, and is considerably lower than last week’s 422k. Continuing Claims were in line with expectations.

One would think that the Jobless Claims number would have pushed rates higher, but perhaps the uncertainty around the US Debt ceiling talks is moderating the reaction. Of course, the debt ceiling talks will continue to be the dominant story in the markets until there is a clear resolution.

In the meantime, there will be a number of important releases on Friday morning.

Canada: Real GDP Growth (May)

US: Q2 GDP Growth (Advance estimate), Personal Income & Expenditures (Advance estimate), Chicago PMI (July), Consumer Sentiment (July).

Rates this morning are in line with yesterday’s levels but have been quite choppy. The most closely watched data of the day was the weekly Initial and Continuing Jobless Claims in the US. Initial Claims were mildly better than expected (offset by an upward revision to last week’s number), while Continuing Claims were mildly worse than expected (and last week’s number was also revised higher).

Canada continues to outperform, with Building Permits issued in February up 9.9% MoM.

One notable overseas event was that the European Central Bank raised its benchmark rate by 0.25% to 1.25%, and left the door open for further rate increases as inflation there has breached the stated 2% policy target. This comes the day after Europe’s sovereign debt crisis officially claimed Portugal as its third victim, with an estimated EUR 80bn bailout.

Friday is a relatively important day here as the March Employment & Unemployment data, and Housing Starts will be released for Canada. The US will be reporting Wholesale Trade.

Data released in North America almost met market expectations, taking rates a few basis points lower ahead of tomorrow’s US Nonfarm Payrolls data. In Canada, MoM GDP growth in January was +0.5% (as expected), while in the US, Initial and Continuing Jobless Claims fell short of expected levels, but were within striking distance. Disappointingly, last week’s numbers were revised higher.

The bond market began rallying in the early afternoon yesterday on the back of intense fighting in Libya, and that rally has gathered momentum this morning following disappointing economic results in Canada and the US.

In Canada, the Trade Balance was considerably worse than expected: $0.1bn in our favour vs. expectations of a $2.6bn surplus. While exports held steady in spite of an ever-stronger loonie, imports grew 5% month over month. Moreover, the $3.0bn surplus in December, which at the time was a massive upside surprise, has been revised lower to $1.7bn.

South of the border, the Trade Balance was also worse than expected: a deficit of $46.3bn vs.  expectations of a $41.5bn shortfall. More importantly in the US, jobless numbers were relatively disappointing once more: Initial Jobless Claims of 397k last week exceeded the 376k expected, with a similar sized miss on Continuing Jobless Claims.  

While the week has been relatively quiet, Friday is a big day. In Canada, the February Employment Report will be released, while Retail Sales, Consumer Sentiment, and Business Inventories will be released down south.

The bond market in North America has sold off somewhat this morning, in part reflecting mildly positive economic data in the US. Initial and Continuing Jobless Claims for the last week were 415k and 3.925MM respectively, with both having managed to better the street’s forecast by a sliver. The magnitude of the selloff, however, is outsized compared to this data alone and appears to reflect heightened inflationary concerns as commodities have rallied sharply in recent days.

Friday is a big day in Canada and the US as the January Employment / Unemployment Reports and related items are released.

Bonds are relatively steady this morning in spite of some disappointing economic data in the US:

-          Durable Goods Orders [Dec] -2.5% (exp. +1.5%)

-          Durable Goods ex Transportation [Dec] +0.5% (exp. +0.9%)

-          Initial Jobless Claims 454k (exp. 405k)

-          Continuing Jobless Claims 3.991MM (exp. 3.873MM)

While the durable goods orders were quite weak, the November set was revised higher, providing a bit of an offset. There is no such balance in the case of the jobless numbers.

Globally, S&P downgraded Japan’s credit rating, reminding markets that sovereign debt issues have not gone away. Evidently a debt to GDP ratio of 200% warrants a AA- rating, not the AA level that it had enjoyed at 195%.

There is no Canadian data out until Monday when we get Real GDP numbers for December, but watch Friday morning’s advance estimate of Q4 GDP in the US.

The bond market has sold off a bit this morning, in large part due to some better than expected US economic data. These include:

-          Initial Jobless Claims for last week were 404k (420k expected)

-          Continuing Jobless Claims for last week were 3.861MM (3.985MM expected)

-          Existing Home Sales increased 12.3% MoM in December (+4.1% expected)

-          Leading Indicators in December were +1.0% (+0.6% expected)

-          Philly Fed for January is 19.3 (20.8 expected)

The most important of these without a doubt is the existing home sales reading, which undoubtedly has a large foreclosure and short sale component.

In Canada, the Leading Indicators reading for December and Wholesale Sales growth for November were both stronger than expected.

The big financial news of the week was of course the Federal Reserve’s confirmation yesterday that it will continue to purchase US Treasurys through to the end of Q2 2011. While the size of $600bn ($75bn per month for eight months) was slightly higher than the market expected, there were no other surprises in the statement. Of note, the Fed has indicated that it will purchase more securities beyond that time frame if the recovery has not progressed to an acceptable level. In short, the US economy remains very weak, and the Fed is helping the government run large deficits to prevent a wholesale contraction until such time as the private sector is well enough to carry the torch.

In all, the Fed is doing what the market has been expecting, which is why there hasn’t been a big change in rates.

In terms of data released today, the US experience was mixed. Nonfarm Productivity growth for Q3 exceed expectations which is positive although the fact that some of the gains are due to lower Unit Labor Costs is undesirable. Initial Jobless Claims rose last week and were slightly higher than consensus, while Continuing Jobless Claims were better than expected.

The Ivey Purchasing Managers Index was released in Canada at 10am, and came in well below expectations. Since that time rates have moved slightly lower.

On a quiet data day, the weekly US Initial and Continuing Jobless Claims number has caused somewhat of a selloff this morning.

Initial Jobless Claims of 434k for last week were much better than the 455k expected. Continuing Claims improved as well, coming in at 4.356MM, considerably lower than the 4.430MM consensus forecast.

As is typically the case, markets are relatively cautious ahead of key US Nonfarm Payrolls data being released on Friday, and particularly so given yesterday’s miss on the ADP employment report.

As with every Thursday, the US Initial and Continuing Jobless Claims numbers for last week were released. And, as with every Thursday, the numbers are stubbornly high. Hovering at around 450k initial jobless claims per week since late last year, this particular metric does not support the recovery hypothesis. That said, Initial Claims came in slightly better than expected this week, while Continuing Jobless Claims managed to fall short of modest expectations.

In Canadian releases, Building Permits were down 9.2% in August vs. July, entirely due to the historically volatile non-residential component, which was down 22.9% month over month. Residential permits increased by 2.0%.

In addition to US Nonfarm Payrolls tomorrow, we also will have insight into the Unemployment Rate, Earnings, as well as wholesale inventories.

Friday is also a big day in Canada as we receive the September Employment Report, covering Net Change in Employment, Participation Rate, and Unemployment Rate. Additionally, September Housing Starts will be announced.