The recent bond market rally continues this morning as more disappointing data comes out of the US.

523,000 Housing Starts (annualized) for April fell well short of the modest 569,000 that were expected [this series is normally between 1.5 to 2.0 million, but has been stuck below 700,000 since late 2008]. Also, Building Permits for April were 551,000 (annualized), also well short of the 590,000 the market was hoping for.

Additionally, Industrial Production did not grow during April (market expected +0.4%) and Capacity Utilization of 76.9% was also below expectations. While some commentators are pointing to Japan-related supply chain disruptions (which are valid), I’m pretty sure forecasters were aware of the situation in Japan when they cobbled together their numbers.

In any event, the above data are quite weak, and the market’s appetite for risk this morning is reflective of that.

Data for the rest of the week includes:

-          Canada: Wholesale Trade (Wed); CPI, Retail Sales (Fri)

-          US: Existing Home Sales, Leading Indicators, Philly Fed, Initial and Continuing Jobless Claims (Thu)

Rates have gone a touch higher this morning as markets everywhere reflect continued optimism and support for the ongoing global growth story.

This morning was a big one for data in Canada as the March employment numbers were released. The headline Net Change in Employment was weak, but this was misleading: Canada added 90,600 full time jobs during the month, and lost 92,100 part time jobs so the jobs machine is a lot stronger than the net decline suggests. Our bond market would have rallied sharply if the true picture was as weak as the headline.

The Unemployment Rate declined to 7.7% from 7.8% as the Labour Force Participation Rate declined, and annualized housing starts of 189k were higher than the 181k expected.

A story that has received relatively little attention from the press is the budget stalemate down south. At midnight tonight many branches of the US government may shut down as the latest federal budget has not been approved by the Republicans, pending certain concessions. This won’t have a large economic impact (unless it becomes really drawn out), but serves as a reminder of how ill-equipped the US political system is to deal with that nation’s biggest challenges in over half a century.

With so many moving parts globally, it is not surprising that investors are generally continuing to play it safe, taking bond yields lower once again (vs. yesterday’s close but higher than yesterday’s open).

The nuclear-related concerns in Japan are not to be taken lightly, but as the initial shock of the Japanese events subsides, we are reminded that unrest in the middle east is continuing (Bahrain, Libya), and that peripheral eurozone nations still have not solved their fiscal troubles. In short, there is plenty of reason for caution.

In terms of North American numbers, Canada’s Manufacturing Sales growth for January was 4.5%, well in excess of the +1.0% growth that was expected. Growth was largely driven by a pickup in autos and related activity.

Down south, the US reported that Housing Starts fell (again) in February to 479k annualized  (exp. was 566k but historically this number has been closer to 1.5MM) confirming that the housing/construction market is even weaker than the very modest expectations the market has developed). Further, various Producer Price measures in the US were up significantly, perhaps showing the effects of the weak dollar.

Remember, US CPI on Thursday and Canadian CPI on Friday.

While the bond market has rallied a touch this morning, it has been surprisingly muted in the face of some ugly US data. The Consumer Price Index indicates that prices were up 0.2% MoM in October (consensus was +0.3%). Excluding the volatile food and energy component, the ‘core’ CPI was flat (consensus was +0.1%). Additionally, October Housing Starts were 519,000 (consensus 598k), while September Housing Starts were revised downwards from 610k to 588k. Finally, Building Permits issued in October were up by 0.5%, but consensus was for a 3.9% pickup.

The only Canadian news this morning was that the Bank of Canada unsurprisingly held its overnight rate steady at 1.0%, citing a weaker than anticipated recovery, tensions in currency markets, and other factors.

Data was mixed south of the border, with Housing Starts for September exceeding expectations but Building Permits for the same month falling well short of market consensus.

Key drivers of the bond market rally this morning include a 25bp rate hike in China ahead of upcoming G20 meetings, as well as disappointing forecasts from firms including IBM and Apple, among others.

This morning’s big news are poor employment headlines on either side of the border contributing to more rallying in the bond market.

Although the Canadian economy shed 6,600 jobs in September (+10,000 gain expected), the details are not so bad. 43,700 lost part time jobs were replaced by 37,100 full time jobs, which I think on balance should be viewed as a good thing. In other employment related news, our Unemployment Rate fell to 8.0% from 8.1%.

Other Canadian news includes a positive development in Housing Starts: September Housing starts of 186.4k were higher than the 179.0k that were expected, and the August number was also revised higher by 6,000 units.

Further south, 18,000 jobs were lost in the month of September (excluding the impact of the unwinding of census-related jobs). Beneath the headline, Private Payrolls were up by 64,000 (falling short of expected 75,000 gain) but it should be noted that the Private Payrolls gain for August was revised higher by 26k.

Other tidbits include an Unemployment Rate which fell to 9.6% from 9.7%, as well as flat levels of Hourly Earnings and Hours Worked.

Due to the Thanksgiving Day holiday here and the Columbus Day holiday in the US, both markets will have an early close.

At the margin, markets continue to embrace risk on the back of Fed beige book comments yesterday that confirm the slowdown in US economic growth has not yet turned into a contraction.

In terms of hard data reinforcing this point, the US Trade Deficit for July was smaller than expected (-$42.8bn vs. -$47.0bn exp.) on the back of an increase in exports and a decrease in imports.

In Canada, Housing Starts for August were roughly in line with expectations and unlike the US, our Trade Deficit was larger than expected (-$2.8bn vs. -$0.8bn exp.) Regrettably, our exports declined (exports to the US declined and the gains in exports to other nations were insufficient to offset entirely) and imports increased.

The big Canadian data for Friday is the August employment report.

Rates have remained low and range-bound for some time now as the market digests a stream of generally soft data which has raise questions related to the robustness of the economic recovery.

In terms of data that was out today in the US we saw several measures of the Producer Price Index at or slightly above expectations, while Housing Starts “rose” in July due to a downward revision in the June number. Adding to housing concerns in the US, Building Permits declined 3.1% in July. Positives include an increase in Industrial Production +1.0% (+0.5% had been expected) as well as a greater than expected increase in Capacity Utilization to 74.8%  from 74.1%.

Canadian data today was limited to June Manufacturing Sales which  rose 0.1% (-0.5% decline had been expected).

The big news this week is on Friday when we get the Canadian CPI numbers for July.

The bond market remains little changed since mid-Friday as eyes focus on this afternoon’s comments that accompany the Fed rate decision (215pm) in the US.

Rates are not expected to change but the market is looking forward to hearing the Fed’s approach to dealing with a declining rate of growth south of the border.

In terms of hard data so far today, in the US we have seen:

-          A slight decline in small business optimism

-          Q2 Nonfarm productivity growth of -0.9% vs. 0.1% expected (and a positive revision to the Q1 figure)

-          Growth in Unit Labour Costs of +0.2% vs. +1.5% expected (and a negative revision to the Q1 figure)

In Canada:

-          July Housing Starts of 189.2k (185.0k expected)

-          New Housing Price Index +0.1% (+0.2% expected)

Key data for the rest of the week for Canada is limited to Trade Balance (Thursday).

In the US, look for the Trade Balance and Treasury Statement (Wednesday), Import Price Indices and weekly Jobless Claims (Thursday), and CPI, Retail Sales, Consumer Sentiment, and Business Inventories on Friday.