Outlook for the Nikkei average this week [14-Jun-2020]

[Present state recognition of fundamental]

Last week, the new coronavirus re-emerged in U.S. markets in states that have taken steps to reopen their economies As a result of this, there was an increased sense of caution about a second wave of infection spreading, and the rate of decline plummeted. On the other hand, in the medium to long term, the spread of new types of pneumonia, an inward political situation centered on the world's own country, a lack of creditworthiness and credit crunch of banks, a slowdown in China and other economies, a fear of a slowdown in the global economy due to trade wars, etc. The geopolitical risks of the Middle East, the Korean Peninsula and Ukraine need continued attention.

The difference in the yield spread between the Japanese and U.S. markets is the published OECD real GDP forecast for 2021 The Japanese market is overvalued by 0.48 points, considering the announced OECD real GDP forecast for 2021. The reason for the overvaluation is the difference between the P/E of the S&P500 at 24.2 and the expected P/E of 18.6 of the Nikkei 225 stocks for the current fiscal year, as well as the difference between Japanese and U.S. interest rates and GDP growth.

This means that if the difference in the GDP growth rate between Japan and the U.S. in 2021 is further decrease by 0.48% compared to the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the PER of the Nikkei 225 stocks for the current term is around 17.1, or if the Nikkei 225 is around 20490 yen, the Japanese market is overvalued by 1820 yen in the medium to long term.

[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 2021 GDP estimate (now +0.74%) by OECD

⑤ Foreign investors over-buying

Looking at recent movements

①    Last week's NYDow weekly trend was negative. The daily footstep is under the 200-day line and above the clouds of the Ichimoku kinko table, while the weekly NASDAQ weekly trend was negative. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. This week, all eyes will be on the housing index, the quarterly earnings release, NY Fed Economic Index for June, Retail Sales for May. I would like to pay attention to whether NYDow can keep above the 25th day line.

②    As a result of the announcement of the quarterly financial results, the forecasted ROE of the Nikkei 225 stocks was 5.8%. 2.0 points worse than 3 months ago. Profit growth was -5.0%, an improvement of 1.9 percentage points compared to three months ago.

③    The U.S. long-term interest rate declined, the interest rate gap between Japan and the U.S. narrowed from 0.86% to 0.70%, and the foreign exchange rate declined. The yen was strong in the 109 to 106 yen range..

④     The real GDP growth rate forecast for 2021 in Japan and the United States of OECD was announced, Japan is expected to be -0.5%, and the United States is expected to be + 1.9%.  

⑤    The 1st week of Jun is a over buying. there is a high possibility that the 2nd week of Jun is a over selling, and this week we are forecasting to over selling.

last week, ①,③ were bearish factors. It seems that ①,②,③,⑤④ will be affected this week.

[Technical viewpoint]

Looking at the Japanese market from a technical standpoint, the 200-day deviation from the NASDAQ is 8.3 points (1850 yen when calculated to the Nikkei 225) undervalued in the medium to long term. The undervalue narrowed compared to last week.

The Nikkei is above the clouds of the Ichimoku Kinko table. The overall deviation rate was +17.2%, a positive margin shrank from the previous week. The 200-day moving average deviation rate was +2.6%, a positive margin shrank from the previous week. As the three factors are positive, the mid-term trend is lit with a "green signal". The Nikkei average is above the 25_day moving average line but under the 9_day moving average line, "yellow signal " is lit for short-term trends.

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

[Outlook for this week]

Looking at the US market fundamentally, concerns such as interest rate hikes in the United States, US-China trade friction, US political uncertainty, North Korea issues are receding However, Spread of pneumonia infection by new coronavirus, falling crude oil prices, worsening U.S. corporate earnings, falling high yield bond markets , global long-term interest rate decline trend, financial market turmoil caused by credit slumps, 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.

In addition, although the LIBOR interest rate has recently been declining, in March, the LIBOR interest rate has risen despite a decline in short-term interest rates, so there is a concern that financial instability may recur.

On the other hand, good news is the US zero interest rate policy, the Fed's direct financial support to companies including the purchase of junk bonds, economic measures of $ 2 trillion, and President Trump's policy expectations, monetary easing measures such as the Bank of Japan's 2% inflation target, the introduction of negative interest rates and the purchase of unlimited Japanese government bonds and 12 trillion yen in ETFs, as well as expectations for economic measures by the Japanese government that exceed the level of the Lehman Shock, large-scale economic measures by the EU countries, and the ECB's announcement of deepening negative interest rates and expanding quantitative easing.

Looking at the technical aspect, the US market is no trend in the medium-term, and no trend in the short term. The Japanese market is upward trend in the medium-term, and no trend in the short term.

An analysis of the currency market last week shows that long-term interest rates in the U.S. fell, the gap between the U.S. and Japan's long-term interest rates narrowed, and the yen We moved higher. This week is expected to be in the 106 to 108 yen range.

From now on, we need to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.

Last week, the Nikkei 225 fell below the expected range. The upside was about 290 yen below the assumed line and the downside was about 800 yen below the assumed line. The assumed range for the Nikkei 225 this week is above the Bollinger Band + 1σ + 300 yen (currently 22890 yen) ) and a move between the 25-day line (currently around 21480 yen) is expected.