Outlook for the Nikkei average this week [23-August-2020]

[Present state recognition of fundamental]

In the US market last week, the stock market index rose, driven by leading high-tech stocks such as Apple. 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 1.02 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 26.2 and the expected P/E of 21.8 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 1.02% 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 17.8 or if the Nikkei 225 is around 18750 yen, the Japanese market is overvalued by 4170 yen in the medium to long term , which is roughly balanced.

[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 -0.5%) by OECD

⑤ Foreign investors over-buying

Looking at recent movements

①    Last week's NYDow weekly trend was positive. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. NASDAQ weekly trend was positive. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. House indexes, quarterly financial results announcements, Republican conventions, and durable goods orders for July will be the focus this week. It will be interesting to see if NYDow can keep above the 25-day line.

②    As a result of the announcement of the quarterly financial results, the forecasted ROE of the Nikkei 225 stocks was 5.0%. 0.5 points worse than 3 months ago. Profit growth was -17.4%, an improvement of 14.0 percentage points compared to three months ago.

③    The long-term interest rate in the United States declined, the interest rate differential between Japan and the US narrowed from 0.67% to 0.61%, and the yen was strengthening from the 106 yen level to the 105 yen level.

④    The OECD's real GDP growth forecasts for Japan and the U.S. for 2021 were released, and Japan's GDP growth rate is expected to be -.0.5%. The U.S. market is expected to be up 1.9%, which means that the Japanese market is 2.4 points worse off in this respect.  

⑤    The 1st week of August was a over buying. There was a high possibility that the 2nd week of August was over buying, and this week we are forecasting to over buying. Of the five points last week, ① was a bullish factor and ③ was a bearish factor. This week, it seems that ① ② ③ ⑤ will influence.

[Technical viewpoint]

From a technical perspective on the Japanese market, the difference in the 200-day deviation rate from NASDAQ is 18.3 points (about 4190 yen when considering the Nikkei 225 average) over the medium to long term. The price range expanded compared to last week. On the other hand, the difference in the 200-day deviation rate from NYDow is 2.3 points (about 530 yen when considering the Nikkei 225 average) under the medium to long term.

The Nikkei 225 is above the clouds in the Ichimoku Kinko Hyo. The total deviation rate was +8.8%, which shrank positive width compared to last week. The 200-day moving average deviation rate was +4.1%, which shrank positive width. As the three factors are positive, the "green light" is lit in the medium term trend.

The Nikkei 225 is above the 25th line but under the 9th line. The "yellow light" is lit in short-term trends.

In the US market, NY Dow is above the 200 and 25 day lines and the 9 day line. It is above the clouds in the Ichimoku Kinko table. Nasdaq is above the 200 and 25 day lines, and the 9 day line. It is above the clouds of the Ichimoku Kinko table.

In the short term, the "green light" is lit, and in the medium term, the "green light" 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.

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 upward trend in the medium term　and upward trend in the short term. The Japanese market is upward trend in the medium term and no trend in the short term.

Analyzing the foreign exchange market last week, long-term interest rates in the US fell, the long-term interest rate differential between Japan and the US narrowed, and the yen moved toward a stronger yen. This week, the range of 105 to 106 yen is expected.

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

Global central bankers will be participating in the Jackson Hole symposium this week, with investors watching for any signs of future policy changes and looking to policymakers' views regarding the world's economic recovery. Key data to watch for include the US second estimate of Q2 GDP, durable goods orders and personal income and outlays,Canada and Germany Q2 GDP updates.

The Nikkei average for last week was below the expected range. The upper price fell about 400 yen below the assumed line, and the lower price fell below the assumed line by about 190 yen. As for the expected range of this week's Nikkei average, the upper price is Bollinger Bands +2σ (currently around 23410 yen) and the lower price is expected to move between the 25th line (currently around 22710 yen).