Outlook for the Nikkei average this week [03-January-2021]

 [Present state recognition of fundamental]

Last week in the U.S. markets, stock indices rose as additional economic measures were signed into law by President Trump. 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 undervalued by 0.24 percentage points, taking into account the announced OECD real GDP forecast for 2021. This is due to the difference between the P/E ratio of the S&P 500 (26.8) and the forecasted P/E ratio of the Nikkei 225 (25.3), the difference between the U.S. and Japanese interest rates, and the difference in the GDP growth rate.

This is because the difference in the GDP growth rate between Japan and the U.S. in 2021 will be 0.24 points larger than the OECD forecasted value (Japan will be revised downward or the U.S. will be revised upward) compared to the current price of the Nikkei 225, or the P/E ratio of Nikkei 225 stocks for the current fiscal year will be about 27.0, or the Nikkei 225 will be 29210 yen The Japanese market is undervalued by about 1770 yen in the medium to long term, since the Japanese and U.S. markets can be interpreted as being in balance.

 

[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 the clouds of the Ichimoku kinko table. NASDAQ weekly trend was negative. 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 quarterly results, the expected ROE of Nikkei 225 stocks was 4.8%, an improvement of 0.3 points from three months ago. The profit growth rate was -20.0%, 0.4 percentage points worse than three months ago.

③    Long-term interest rates in the U.S. declined, and the interest rate difference between Japan and the U.S. narrowed from 0.91% to 0.90%, and the yen moved in the direction of appreciation from the 103-yen level to the 102-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 3.2%, which means that the Japanese market is 0.9 points worse off in this respect.  

⑤    It is highly likely that the December 4 and December 5 weeks were overbought, and overbought is expected this week. 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 200-day divergence from the NASDAQ is balanced at 0.0 points (about 0 yen when calculated on the Nikkei 225) over the medium to long term. The margin of undervaluation has narrowed compared to last week. On the other hand, the 200-day divergence from NYDow is 7.5 points (about 2,060 yen in terms of the Nikkei 225) overvalued in the medium to long term.

The Nikkei 225 is above the clouds in the Ichimoku Kinko table. The total deviation rate was +34.2%, which has shrank positive width compared to last week. The 200-day moving average deviation rate was +21.4, which has shrank in the 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, the latest LIBOR rates are showing signs of rising, and caution is required. In March 2020, the LIBOR rate rose despite a decline in short-term interest rates, raising awareness of the possibility of renewed financial instability.

 

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 103 yen to 102 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 will be on this week's Federal Reserve minutes and the U.S. jobs report due on Friday, which will suggest a further slowdown in the labor market recovery. Other major releases include the U.S. ISM PMI survey and foreign trade, U.K. financial indicators, Eurozone retail sales, industrial production, inflation, China's PMI survey, and Japan's consumer confidence.

 

Last week, the Nikkei 225 was well above the expected range. The upside was about 680 yen above the assumed line and the downside was about 190 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +3σ (currently around 27510 yen) on the upside and the Bollinger Band +1σ (currently around 27000 yen) on the downside.