The US dollar has begun the new week on a firm note, but the decline in yields limit the gains. The US 10-year yield is pulling back from the 2.40% area, which is it not been able to sustain gains above since Q1. European bond yields are also 1-3 basis points lower today after jumping last week.

Equities are mostly firmer. The MSCI Asia Pacific Index, which fell to a five-week low at the end of last week, rose by 0.3%. Greater China (including Hong Kong and Taiwan) shares fell, but Japan, Korea, Index, and Australian share prices rose.

The Dow Jones Stoxx 600 gapped higher at the open today. It remains unfilled through the European morning and extends to the pre-weekend high of 380.33. The DAX gapped higher, but last week’s highs, a little below 12500 is still capping the index. Consumer staples, real estate, and utilities are leading the European advance. Spain is the notable exception. Its bourse is off 0.3% as telecoms and financials act as drags offsetting the rise in health care, real estate, and utilities.

The Japanese yen remains the weakest of the major currencies. It is off 0.3% today to trade at its lowest level in two months. BOJ’s Kuroda has made it clear that the 2% inflation target remains the goal and it is still premature to talk about an exit. Japan reported an unexpected decline in machine orders (-3.6% May month-over-month vs. expectations for a 1.7% rise after a 3.1% decline in April). This may point to a pullback in CapEx.

Separately, Japan reported a somewhat smaller than expected May current account surplus. Of note, Japan reported a trade deficit in May of JPY115. bln. May is seasonally a soft month for trade as the Golden Week holiday is disruptive. Last May’s JPY30 bln surplus was the smallest of the year, and May 2015 showed a deficit. However, the Japan’s primary income balance is the real driver of the current account surplus. The primary income surplus of JPY1.92 trillion compares with the overall current account surplus of JPY1.65 trillion.

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