[Present state recognition of fundamental]
In the US market last week, the stock index fell due to uncertainty about additional economic agreements and a surge in infection with the new coronavirus. 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 1.08 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 22.6 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 1.08% 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 18.2 or if the Nikkei 225 is around 18910 yen, the Japanese market is overvalued by 4600 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. It will be interesting to see if NYDow can be keeping 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 4.9%. 1.2 points worse than 3 months ago. Profit growth was -21.0%. 19.3 points worse than 3 months ago.
③ Although long-term interest rates in the United States rose and the interest rate differential between Japan and the United States widened from 0.74% to 0.81%, the exchange rate moved from 105 yen to 104 yen.
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 October 2nd was over buying. It is highly possible that October 3rd was over selling, and this week is expected to be over selling. Last week, ① was bearish factor. This week, ①②③⑤ are expected to have an influence.
[Technical viewpoint]
Looking at the Japanese market from a technical point of view, the difference in the 200-day line deviation rate from NASDAQ is 11.0 points (about 2590 yen when considering the Nikkei average) cheaper in the medium to long term. Compared to last week, the bargain range has expanded. On the other hand, the difference in the 200-day line deviation rate from NYDow is 1.2 points cheaper in the medium to long term (about 280 yen when considering the Nikkei average).
The Nikkei 225 is above the clouds in the Ichimoku Kinko Hyo. The total deviation rate was +9.2%, which expanded positive width compared to last week. The 200-day moving average deviation rate was +6.9, which expanded 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 day line and the 25 day line but under the 9 day line. It is above the clouds in the Ichimoku Kinko table. Nasdaq is above the 200 day line and the 25 day line but under the 9 day line. It is in the clouds of the Ichimoku Kinko table.
In the short term, the "yellow 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 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 foreign exchange market last week showed that the US long-term interest rates rose and the US-Japan long-term interest rate differential widened, but the yen appreciated. This week, it is expected to be in the 105-104 yen range.
From now on, we need to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.
In the United States, GDP growth for Q3 will be in the spotlight this week, alongside personal income and durable goods orders. The earnings season continues, with Alphabet, Apple, Amazon, and Facebook due to report their quarterly results. Elsewhere, the ECB and the BoJ will announce their monetary policy decisions. Traders will also monitor China’s Communist Party Congress and any further development in Brexit negotiations.
Last week's Nikkei average was above the expected range. The upper price was about 120 yen below the assumed line, and the lower price was about 340 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 23790 yen) and the lower price is between the 25th line (currently around 23440 yen).
