Outlook for the Nikkei average this week [24-January-2021]

 [Present state recognition of fundamental]

In the U.S. market last week, tech stocks were bought and stock indices rose. 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 0.23 points higher than that of the U.S. market, considering the announced OECD real GDP forecast for 2021. The reason for the premium is the difference between the S&P 500's PER of 23.4 and the Nikkei 225's expected PER of 26.1 for the current fiscal year, as well as the difference in interest rates and GDP growth between Japan and the US.

This means that if the difference in GDP growth rates between Japan and the U.S. in 2021 is further reduced by 0.23 points compared to the OECD forecast (upwardly revised for Japan or downwardly revised for the U.S.), or if the PER of the stocks in the Nikkei 225 is about 24.6, or if the Nikkei 225 is about 26,990 yen compared to the current price of the Nikkei 225. The Japanese market is overvalued by about 1,640 yen in the medium to long term.

 

[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 poaitive. 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 financial results, the forecasted ROE of Nikkei 225 stocks was 4.8%, 0.1 points worse than three months ago. The profit growth rate was -19.9%, an improvement of 1.0 points from three months ago.

③    Long-term interest rates in the U.S. rose, the interest rate gap between Japan and the U.S. narrowed from 1.06% to 1.07%, and the exchange rate fluctuated between the 103 yen and 104 yen levels.

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    The 2nd week of January was overbought, the 3rd week of January was likely oversold, and this week is expected to be oversold. Last week, of the five points, ① was bullish. This week, ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 0.1 points (about 30 yen in terms of the Nikkei 225) over the medium to long term in terms of the 200-day divergence from the NASDAQ. Compared to last week, the overvalued range has increased. On the other hand, the stock is overvalued by 10.2 points (about 2920 yen in terms of the Nikkei 225) over the medium to long term in terms of the 200-day divergence from NYDow.

The Nikkei 225 is above the clouds in the Ichimoku Kinko table. The total deviation rate was +37.7%, which has shrank positive width compared to last week. The 200-day moving average deviation rate was +22.9, 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 no 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.

 

In the US, it will be a very busy week of economic data including fresh GDP growth figures, Fed's monetary policy decision and corporate earnings, with reports from Apple, Microsoft, Facebook and Tesla. Investors will continue to focus on the pandemic, specially on new and more-contagious strains and will carefully monitor President Biden's legislative agenda in a divided Congress. Elsewhere, the IMF is set to release its World Economic Outlook and growth figures from Germany, Mexico and Hong Kong will also be in the spotlight..

 

Last week, the Nikkei 225 moved within the expected range. The upper price was about 90 yen below the assumed line and the lower price was about 860 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +2σ (currently around JPY29180) on the upside and the 25-day line (currently around JPY27560) on the downside.