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.

Canada managed to add 69,200 new jobs in January, with a good mix of private, public, and self-employed job creation. There was a bias in favour of part-time over full-time, but this report is undoubtedly strong, and much better than the +15,000 jobs the market expected.

Despite the gains in jobs, the Unemployment Rate rose to 7.8% from 7.6% as more people dive into the labour force looking for work. Remember, you need to be actively seeking employment in order to be counted as unemployed.

South of the border, there is a lot of confusion. Nonfarm Payrolls grew by +36k in January (expectation was for +146k), however the Unemployment Rate fell from 9.0% to 9.4% (and was expected to rise to 9.5%). Many analysts are suggesting that the US numbers were skewed by weather patterns (as they often are in the winter months) and that the reported Nonfarm number is too low (i.e. jobs grew more) and that the Unemployment Rate is also misreported and will be revised higher in subsequent months. It is the first inference which seems to be capturing the market’s imagination.

In comparison, last February there was a large weather effect that resulted in an upward revision from +62k to +158k the following month. The weather effect is not estimated to be quite as large for the current period but the market seems to be acting as though the +146k was blown away, which doesn’t seem probable, even on revision.

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.

A lot of important data both in Canada and the US, along with political developments abroad, have caused very little change in the bond market in aggregate.

First up, Canadian GDP grew 0.4% on a seasonally adjusted basis in November (+0.3% exp.), thanks to strong showings in the oil and gas sector, as well as wholesale and retail trade.

Meanwhile, the US consumer keeps swinging: For December, Personal Income grew +0.4% (+0.4% exp.) and Personal Spending grew 0.7% (+0.5%).

These moderately positive releases normally may have pushed rates higher by a few basis points, but with the uncertainty in Egypt having the potential for far-reaching political and economic impact, the bond market seems to be maintaining a cautious edge.

Bonds have sold off very mildly vs. last night’s close on the back of mixed US data.

The key data out this morning shows that US GDP grew at a 3.2% annualized rate in the 4^th Quarter of 2010, which was actually below consensus estimates of 3.5%.

Despite this ‘disappointment’, the market seems to be taking strength from the fact that the Personal Consumption component of GDP grew by 4.4% in the quarter, higher than the 4.0% that had been expected. It is likely that you will see articles declaring that the US consumer is ‘back’ over the next day or two.

Canadian December GDP is out on Monday.

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.

An early rally in the bond market has faded somewhat. The rally was largely set off by surprising data released overnight that showed the UK economy contracted 0.5% in the 4^th quarter of 2010. The market had been expecting growth of +0.5% so the surprise was quite large.

In Canada, the December inflation numbers released this morning were a bit softer than expected. The CPI was flat vs. November, and up 2.4% year over year (in both cases, 0.1% less than expected by the market), while the Core CPI was -0.3% vs. November (-0.1% exp.) and +1.5% YoY (+1.6% exp.).

Finally, further south we saw evidence that the post-‘homebuyer tax credit’ price of residential real estate has continued trending downward since reaching post-crash highs in June. The November S&P/Case-Shiller Home Price Indices showed that home prices have once again fallen about 3% in the five months from June to November.

Key events for the rest of the week are US-only. New Home Sales, Fed Meeting (Wed); Pending Home Sales, Durable Goods Orders, Initial and Continuing Jobless Claims (Thu); Q4 GDP, Consumer Sentiment (Fri).

Also note that this week, the annual global economic conference in Davos, Switzerland is taking place, and there is likely to be lots of rhetoric and ideas for the market to digest.

It is a quiet day data-wise but it is worth noting that on Tuesday, the Canadian December CPI numbers will be released, with some material data out in the US as well.

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.

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.