[Present state recognition of fundamental]
U.S. markets last week saw stock indices rise on expectations of a smooth transition of power and the spread of a vaccine for 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 0.99 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 26.0 and the expected P/E of 24.8 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 0.99% 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 19.9 or if the Nikkei 225 is around 21390 yen, the Japanese market is overvalued by 5260 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 the clouds of the Ichimoku kinko table. NASDAQ weekly trend was flat. The daily footstep is above the 200-day line and the clouds of the Ichimoku kinko table. It will be interesting to see if NYDow can hold 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%. 0.1 points worse than 3 months ago. Profit growth was -19.8%. 2.3 points worse than 3 months ago.
③ The U.S. long-term interest rates rose, with the interest rate differential between the U.S. and Japan remaining unchanged at 0.82% to 0.82% and the yen moving slightly lower at the 103 to 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 +2.1%. The U.S. market is expected to be up 4.1%, which means that the Japanese market is 2.0 points worse off in this respect.
⑤ November 3rd week was over buying. It is highly possible that November 4th week was over buying, and this week is expected to be over selling. Last week, ① was bullish 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 0.9 points (about 240 yen when considering the Nikkei average) cheaper in the medium to long term. Compared to last week, the bargain range has shrank. On the other hand, the difference in the 200-day line deviation rate from NYDow is 6.0 points higher in the medium to long term (about 1600 yen when considering the Nikkei average).
The Nikkei 225 is above the clouds in the Ichimoku Kinko table. The total deviation rate was +39.9%, which shrank positive width compared to last week. The 200-day moving average deviation rate was +20.3, 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 day line and the 25 day line and 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 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, North Korea issues are receding However, Spread of pneumonia infection by new coronavirus, US political uncertainty, 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 upward trend in the short term. The Japanese market is upward trend in the medium term and upward trend in the short term.
Analyzing the currency market, the yen has been moving gently in the direction of strength for the last six months. This week, we expect the yen to be in the 104 yen to 103 yen range.
From now on, we need to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.
All eyes turn to US Fed Chair Powell's testimony before Congress this week, as well as the US jobs report due Friday, which will probably point to a further slowdown in the labor market recovery. Elsewhere, GDP data for Brazil, Australia, Turkey and Canada will be in the spotlight as well as worldwide manufacturing and services PMI surveys and monetary policy action by the RBA and RBI. Other releases include trade figures for the US and Canada, factory orders for the US and Germany, industrial output and retail sales for Japan and South Korea.
Last week the Nikkei 225 was above the expected range. The upper price was about 570 yen above the assumed range, and the lower price was about 920 yen above the assumed range. This week's Nikkei 225 is expected to move between Bollinger Band + 2σ (now around 27150 yen) and Bollinger Band + 1σ (now around 25970 yen).
