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BOJ SHAKES MARKETS By WSS Research Desk

By Carlos Guillen

Stock markets in Europe and Asia finished their respective sessions down quite significantly today as bond rates pretty much around the world ticked higher, sparked by investors' disappointment that the Bank of Japan (BOJ) left its interest rates and asset-buying program unchanged. Of course, we felt the aftershocks of this worldwide disappointment here at home during the early hours of trading. But equity markets have recovered, and are down but not significantly so far into the first half of the trading session.

Quite interestingly, investors in Japan were spooked away from stocks as they saw no additional efforts from the BOJ to inject the economy with more forms of stimulus in order to promote growth. However, the BOJ's reasoning for not ramping up quantitative easing was that it saw signs of economic recovery in the region. So, in essence, news that the economic backdrop was improving had a negative effect on Japanese stocks as reflected by Japan's Nikkei Stock Average falling 1.5 percent, after rallying 4.9 percent in the previous session.

Here at home, the early trading session was also affected by the activity in Japanese markets, but the effects were not long lasting, and although stocks are still in losing territory, they have gained back most of their earlier loses, and the Dow Jones Industrial Average is down just 20 points after being down close to 130 points.

On other domestic items, the Commerce Department said today that U.S. wholesale inventories rose by 0.2 percent in April to $504.8 billion, compared with a revised 0.3 percent increase in March. During the same period, sales of wholesalers climbed 0.5 percent, while the inventory-to-sales ratio fell to 1.21 from 1.22. The small but consistent increase in inventories is encouraging as this is an important component in gross domestic product (GDP). During the first quarter of this year, inventories added more than half a percentage point to GDP growth, which advanced at a 2.4 percent annual rate. As it stands, forecasts for second quarter GDP growth currently range below a 2.0 percent pace.

Also a bit encouraging today was that small-business optimism rose to its highest level in a year. According to the National Federation of Independent Business, Small-business sentiment rose 2.3 points to 94.4 in May, which also is the second-highest level since the recession. Of the 10 components, 8 rose, led by a 10-point jump in the "expect economy to improve" category, which still is a net negative 5 percent.

At the moment, despite the recovery from earlier in the trading session, stocks appear to be heading lower again, but this is to be expected as there is very little in terms on significant economic data to drive markets, which usually causes significant volatility.

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