Outlook for the Nikkei average this week [20-September-2020]

 

[Present state recognition of fundamental]

Last week, the US market continued to sell its flagship tech stocks, and the stock index fell. 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 1.32 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 25.6 and the expected P/E of 23.3 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 1.32% 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 17880 yen, the Japanese market is overvalued by 5480 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 negative. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. NASDAQ weekly trend was negative. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. House indexes, quarterly financial results announcements, weekly new unemployment insurance applications, durable goods orders in August. Index will be the focus this week. It will be interesting to see if NYDow can return to the top of 25-day line.

②    As a result of the announcement of the quarterly financial results, the forecasted ROE of the Nikkei 225 stocks was 4.7%. 1.2 points worse than 3 months ago. Profit growth was -21.7%.19.2 points worse than 3 months ago.

③    The long-term interest rate in the United States was flat, and although the interest rate differential between Japan and the United States widened from 0.65% to 0.69%, the yen appreciated from the 106 yen level to the 104 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 2nd week of September was a over selling. There was a high possibility that the 3rd week of September was over selling, and this week we are forecasting to over selling. Of the five points last week, ① 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 7.4 points (about 1730 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 0.9 points (about 210 yen when considering the Nikkei 225 average) over the medium to long term.

 

The Nikkei 225 is above the clouds in the Ichimoku Kinko Hyo. The total deviation rate was +9.4%, which shrank positive width compared to last week. The 200-day moving average deviation rate was +6.1%, 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 and the 9th line. The "green light" is lit in short-term trends.

 

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

In the short term, the "red 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 $ 3 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, Established 92 trillion yen corona reconstruction fund by EU, 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 down trend in the short term. The Japanese market is upward trend in the medium term and upward trend in the short term.

 

An analysis of the foreign exchange market last week showed that the US long-term interest rate was flat and the US-Japan long-term interest rate differential widened, but the yen appreciated. This week, it is expected to be in the 104-105 yen range.

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

 

This week, the coronavirus will continue to dominate the headline, as investors fear that an increase in coronavirus infections may hinder a global economic recovery. Meanwhile, Fed Chair Powell and Treasury Secretary Steven Mnuchin will testify to the CARES Act in the Senate and House of Representatives. Elsewhere, PMI surveys in the United States, United Kingdom, Eurozone, Japan and Australia will be the focus of attention, with central banks in China, Turkey, Mexico and New Zealand making monetary policy decisions.

Last week's Nikkei average was above the expected range. The upside was about 50 yen above the assumed line, and the downside was about 70 yen above the assumed line. The expected range of this week's Nikkei average is that the upper price is Bollinger band + 2σ (currently around 23580 yen) and the lower price is Bollinger band -1σ (currently around 23020 yen).