The bond market has sold off slightly this morning, pushing rates marginally higher. Positive information out of the US includes higher than expected Housing Starts for June (629k vs. 575k), and also Building Permits (624k vs. 595k).

In Canada, the Bank of Canada held its overnight rate steady at 1.00% but the language was tweaked slightly again to remind the market that the removal of monetary stimulus is inching closer. Fiscal crises in Europe and the US continue to pose downside risks, as does the potential for the Canadian dollar to appreciate further in a higher rate environment.

Later in the week, look out for:

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

US: Existing Home Sales (Wed); Leading Indicators, Philly Fed (Thu).

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)

The bond market continues to rally as risk aversion remains the dominant theme.

Growth in Canadian Building Permits for March of 17.2% [exp. -2.5%] should, in isolation, send rates higher.

Any positive economic story that the Permits number told was overshadowed by US weekly Initial Jobless Claims of 474k, which continue to remain stubbornly high. Last week’s print was 431k and expectations for this week were 410k. Ongoing labour market weakness will continue to undermine the notion of a self-sustaining recovery, and all else equal, will conspire to keep rates lower than what they otherwise would be.

Watch out for Friday’s Employment numbers for April, both in Canada and the US.

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.

Generally weak data was released in North America this morning. For Canada, Manufacturing Sales growth of -0.8% in November fell well short of the +0.3% reading the market had been expecting. The slide was caused entirely by a decrease in the motor vehicles / parts segment.

For the US, Housing Starts for December at 529k annualized were also weak, but there was a strong pickup in building permits, and some weak results released by some US financial institutions this morning are also weighing on the market.

Balancing off these generally disappointing items are strong earnings results in the tech sector and decent results in the latest auction of Portuguese debt.

There is a bit of bond market rally taking place this morning due largely to two factors: 1. Bernanke conceding in an interview that it is possible the Fed could engage in Quantitative Easing Part III, and 2. Divergent political views in Europe related to the handling of sovereign debt concerns which are once again undermining confidence there.

Data is really light today in Canada: Building Permits declined in October by -6.5% which was slightly worse than what was expected. Also, the Ivey PMI for November will be released at 10am.

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.

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.