Outlook for the Nikkei average this week [31-January-2021]

 [Present state recognition of fundamental]

Last week, the U.S. market was overly speculative by retail investors, and stock indices fell sharply on reports of massive losses by hedge funds. 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 0.39 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 22.2 and the Nikkei 225's expected PER of 25.2 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 0.39 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 23.0, or if the Nikkei 225 is about 25220 yen compared to the current price of the Nikkei 225. The Japanese market is overvalued by about 2450 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 negative. 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 return 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 -19.0%, an improvement of 0.8 points from three months ago.

③    Although long-term interest rates in the U.S. declined and the interest rate gap between Japan and the U.S. narrowed from 1.07% to 1.03%, the yen weakened in the range of 103 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 +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 3rd week of January was oversold, the 4th week of January was likely oversold, and this week is expected to be oversold. Last week, of the five points, ① was bearish. This week, ①②③⑤ are expected to have an impact.

 

[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 9.1 points (about 2,520 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 +22.5%, which has shrank positive width compared to last week. The 200-day moving average deviation rate was +17.4 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 under the 25th line and the 9th line. The "red light" is lit in short-term trends.

 

In the US market, NY Dow is above the 200 day line but under 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 but under the 25 day line 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, 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 downward trend in the short term. The Japanese market is upward trend in the medium term and downward 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 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 U.S. jobs report will provide an update on the labor market, which saw its seventh consecutive month of job growth in December. The ISM PMI will also be in focus and the progress of the stimulus debate in Congress will be closely watched. Quarterly earnings will continue, with Alphabet, Amazon, and Pfizer in the spotlight. Other notable events will be the OPEC+ meeting, monetary policy decisions by the BoE, RBA, and RBI, and GDP growth in the Eurozone.

 

Last week, the Nikkei 225 fell below the assumed range. The upper price was about 480 yen below the assumed line and the lower price was about 260 yen below the assumed line. The expected range for the Nikkei 225 this week is the 25-day line (currently around 27890 yen) on the upside and the Bollinger Band -2σ (currently around 26400 yen) on the downside.