The bond market has rallied a touch compared to yesterday’s close, likely due to a number of factors.

US data betrayed that country’s difficulty in maintaining forward momentum. Industrial Production for May was up 0.1% (market expected +0.2%), while Capacity Utilization was stagnant at 76.7% (same as April, and lower than expectations for 77.0%). Also, the Empire Manufacturing Index, a survey of manufacturers in a variety of industries, came in at -7.79 (market expected +12.00; positive numbers indicate expansion, negative readings indicate contraction), only the second negative reading in two years. In aggregate, these US numbers are bearish.

US Inflation Year over Year was a bit higher than expected (3.6% vs. 3.4%), primarily due to rising energy and food costs (excl. Food & Energy, CPI grew 1.5% vs. exp. of 1.4%). Of course, this reduces discretionary spending, which in turn hinders the recovery.

In Canada, Manufacturing Sales growth of -1.3% for May ‘beat’ expectations of -1.4%.

Globally, civil disobedience in Greece is getting a lot of airtime today as that country’s leaders debate the merits of the austerity-for-cash offer made by the EU/IMF/ECB. In combination with disagreements between Germany and the ECB as to who bears the costs of such a bailout means that the resolution of the situation remains disappointingly uncertain.

The only hard data out in North America this morning was in the US. Retail Sales growth for January was softer than expected: +0.3% vs. 0.5% consensus, and there were some downward revisions to the December data as well.

The Empire Manufacturing Index was a touch higher than expected, while the Import Price Index surged: +1.5% MoM (exp. +0.8%) and +5.3% YoY (exp. +4.4%).

The retail numbers exert downward pressure on yields, while the rest of the data works to move yields higher.

Other notable headlines this morning include the accelerating rate of inflation in China (officially 4.9% YoY, with food prices up 10.3% YoY).

The rest of the week will be quite eventful, including the January CPI for both Canada and the US:

-          Canada: Manufacturing Shipments, Leading Indicators (Wed), Wholesale Trade (Thu), CPI (Fri)

-          US: Housing Starts, Building Permits, Industrial Production, Capacity Utilization, FOMC Meeting Minutes (Wed), CPI, Leading Indicators, Philadelphia Fed, Initial and Continuing Jobless Claims (Thu).

The bond market has rallied modestly this morning following the selloff late yesterday.

Largely responsible for stabilizing yields this morning are the US CPI numbers for November, which at 0.1% MoM, were lower than market expectations for 0.2%. These serve as a reminder that while the market has moved to price in certain events, the inflation is not yet evident.

Other positive data in the US include the Empire Manufacturing Index for December at 10.57 (exp. 5.0), growth in Industrial Production for November of 0.4% (exp. 0.3%), and an uptick in Capacity Utilization to 75.2% (exp. 75.0%).

The only Canadian data out this morning was October Manufacturing Sales which were up 1.7% (exp. 1.0%).

In summary, lots of data suggesting the economy is moving in the right direction, but if inflation lurks, it remains well hidden.

The bond market sold off somewhat early this morning ahead of the release of the October Retail numbers in the US, on expectations that the numbers would print ahead of consensus. This was in fact the case with Retail Sales growth of +1.2% vs. +0.7% expected. Most of the ‘surprise’ was contained in the autos and gas component. The growth in retail sales heading into the holiday season is cause for optimism.

The market seems to be ignoring a very negative reading on the Empire Manufacturing Index which suggests caution is in order.

Markets are digesting considerable amounts of information this morning, with the net effect (at least with the CMB) is that rates are roughly flat to yesterday.

US CPI numbers for September showed less price inflation than the market expected (+0.1% vs. the expected +0.2%), which supports the case for lower bond yields. Also supporting the case for lower bond yields is the continued chatter by Ben Bernanke regarding the Fed restarting its Treasury purchase program, specifically in a speech this morning.

On the more bullish side in the US, September Retail Sales growth of 0.6% was higher than the expected 0.4%, and the Empire Manufacturing Index popped with a value of 15.73 vs. the expected 6.00.

Closer to home, some better-than-expected results as Manufacturing Sales grew by 2.0% in August (+0.5% expected), and while New Motor Vehicle Sales were down, the drop was less than expected.

For next week, in Canada: BoC Policy Announcement (Tue), Wholesale Trade, BoC Policy Report (Wed), Leading Indicators (Thu), CPI and Retail Sales (Fri)

In the US: Capacity Utilization, Industrial Production (Mon), Housing Starts & Building Permits (Tue), Beige Book (Wed), Leading Indicators, Philly Fed (Thu).