Outlook for the Nikkei average this week [2-Jun-2019]

[Present state recognition of fundamental]

In the US market last week, selling was dominated by the prolonged friction between the US and China and the announcement of additional tariffs to Mexico by the US administration. In the medium to long term, there are fears of a slowdown in the global economy due to confusion of US politics, raise rate by FRB, European political turmoil and the creditworthiness of European banks and credit crunch concerns, the economic slowdown of emerging economies such as China, and concern over the global economic slowdown due to trade war. We need continued attention to the geopolitical risk of the Middle East , Korean Peninsula and Ukraine.

The difference in the yield spread between the US and Japanese markets is 3.25 points less than in the Japanese market, taking into account the 2020 OECD's real GDP forecast announced. The reason for the bargain is due to the difference between S&P500 's PER of 17.0 and the Nikkei average adopted stock price PER 11.6 and Japan-US interest rate difference, GDP growth difference. This is because the difference in GDP growth between Japan and the US in 2019 is 3.2% more than the OECD forecast (Japan will downgrade or US will be revised upward) against the current Nikkei average price, or it can be interpreted that the Japanese-U.S. Market will be in equilibrium, because the expected PER of the Nikkei average hires will be around 18.7 (the results for the current term will be revised downwards or the Nikkei average will be around 33120 yen) . In the medium to long term, the Japanese market is low valued at about 12520 yen.

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

① Rising US market

② UP of expected profit increase rate for the current term more than before

③ Expansion of the interest rate differential between Japan and the US and further depreciation of the yen

④ Upward revision of Japan's 2020 GDP estimate (now +0.68%) by OECD

⑤ Foreign investors over-buying

Looking at recent movements

① Last week's NYDow weekly foot was negative. The daily bar is under the 200 day line, and it is under the cloud of the ichimoku table. Nasdaq weekly foot was positive. NASDAQ bar is under the 200-day line and it is under the cloud of the ichimoku table. This week we will be paying attention to Housing related indicators, Quarterly financial results announcement , May ISM Manufacturing Index, May Employment Statistics. I would like to pay attention to whether NYDow can return above the 25th day line.

② The expected profit increase for the Nikkei 225 hires will be 8.9% with the announcement of the financial results for the January-March term, 0.3 points worse than 3 months ago. In addition, the profit growth rate for the current business forecast is +3.3%, an improvement of 7.0 points from three months ago..

③ The long-term interest rates in the United States decreased, the interest rate differential between Japan and the US shrank from 2.40% to 2.22%, and the exchange rate moved from the ¥ 109 level to the ¥ 108 level.

④ The OECD's real GDP growth rate in 2020 in Japan and the US is expected to be + 0.61% in Japan and + 2.28% in the US, so the Japanese market is worse by 1.67 points on this aspect.

⑤ The 3rd week of  May is a over selling. there is a high possibility that the 4th week of  May is a over selling, and this week we are forecasting to over selling.

last week, ①,③,⑤ were a bearish factor. It seems that ①,②,③,⑤ will be affected this week.

[Technical viewpoint]

From the technical viewpoint of the Japanese market, the 200-day divergence rate difference with NASDAQ is 2.9 points lower than NASDAQ in the medium to long term. (It is about 1030 yen when it is based on the Nikkei average)  Proportions shrank compared to last week.

The Nikkei average is under the cloud of the ichimoku table. The total deviation rate was -13.4%, and expanded the negative width compared to last week. The 200-day moving average line deviation rate was -5.4%, and expanded the negative width compared to last week. Since the three elements is negative, the "red signal" is lit in the medium term trend. The Nikkei average is under the 25_day moving average line and the 9_day moving average line,  "red signal " is lit for short-term trends.

In the US market NY Dow is under the 200_day line and the 25_day line and the 9_day line. It is under the cloud of ichimoku table. NASDAQ is under the 200_day average line and the 25_day average line and the 9_day average line. It is under the cloud of the ichimoku table. In the short term "red signal" is lit and in the medium term "red signal" is lit.

[Outlook for this week]

Looking at the US market fundamentally, concerns such as interest rate hikes in the United States, sluggish growth in US corporate performance, financial market turmoil caused by credit slumps, North Korea issues, falling crude oil prices and falling high yield bond markets are receding However, global long-term interest rate decline trend, US-China trade friction, US political uncertainty, lack of creditworthiness and political situation of EU banks, global economic slowdown concern with trade war, geopolitical risk of the Middle East and Ukraine Etc exist as a risk factor.

Real estate prices in China are flat in large cities, but the problems of nonperforming loans in China as a whole such as excessive facilities have not been resolved. If you hurry up the process, it will lead to a short-term market drop, and if you delay proceeding, there is concern that the economic recession will be prolonged.

Also, the latest LIBOR interest rate is on the upward trend, it continues to update the high price in the past five years, which implies that global nonperforming debt continues to increase, and the possibility of financial unrest is revealed .

On the other hand, the following points can be pointed out as favorable materials. US rate hike interruption, policy expectation of President Trump, setting of 2% inflation target by the Bank of Japan, introduction of negative interest rate and purchase of ETF of 80 trillion yen · 6 trillion yen ETF Clarification of the duration of interest rate manipulation and monetary easing and announcement of maintaining the level of policy interest rates by the ECB during the year.

Looking at the technical aspect, the US market is downward trend in the medium-term, and downward trend in the short term. The Japanese market is downward trend in the medium-term, and downward trend in the short term.

An analysis of last week's foreign exchange market showed that while the US long-term interest rates declined and the difference between long-term interest rates shrank, and the yen was strong in the week. This week, 107 yen to 109 yen is expected. From now on, we need to focus on technical indicators, US market trends, currency movements and foreign investor trends.

Last week's Nikkei average remained within the expected range. The upper price was about 330 yen lower than the expected line, and the lower price was about 100 yen higher than the expected line. This week's Nikkei average is expected to move between Bollinger Band-1σ (currently around 20970 yen) and Bollinger Band-3σ (currently around 19990 yen).