Outlook for the Nikkei average this week [21-February-2021]

 [Present state recognition of fundamental]

Last week, U.S. markets were mixed, with buying on the expected benefits of the Corona vaccine and selling due to rising long-term interest rates. On the other hand, in the medium to long term, there are concerns about inflation due to the side effects of excess liquidity, and concerns about a shortage of bank credit and a credit crunch due to defaults on high-yield bonds. There are also concerns about a slowdown in the global economy due to the economic slowdown in China and other countries, trade wars, etc., given the global political situation centered on the home country. Furthermore, we need to continue to pay attention to geopolitical risks in the Middle East and East Asia.

 

The difference in the yield spread between the Japanese and U.S. markets is 0.47 points lower 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 22.9 and the Nikkei 225's expected PER of 22.4 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 0.47 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 25.0, or if the Nikkei 225 is about 33520 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3500 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 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 keep above the 25-day line.

②    As a result of the announcement of the quarterly financial results, the expected ROE of the Nikkei 225 stocks was 5.8%, an improvement of 0.9 points from three months ago. In addition, the profit growth rate was +4.5%, an improvement of 24.5 percentage points from three months ago.

③    Long-term interest rates in the U.S. rose, widening the interest rate gap between Japan and the U.S. from 1.15% to 1.24%, and the yen weakened in the 104 to 106 –yen range..

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 February was overbought, the 3rd week of February was likely oversold, and this week is expected to be oversold. Last week, of the five points, ①② were 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 3.1 points (about 930 yen in terms of the Nikkei 225) over the medium to long term in terms of the 200-day divergence from the NASDAQ. The undervaluation has increased compared to last week. On the other hand, the stock is overvalued by 12.1 points (about 3,630 yen in terms of the Nikkei 225) in 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 +37.6%, which has expanded positive width compared to last week. The 200-day moving average deviation rate was +23.7 which has expanded 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 but under the 9 day line. It is above 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 U.S. market from a fundamental perspective, concerns about the U.S. interest rate hike, the U.S.-China trade friction, and the North Korea issue have receded, but risk factors include the upward trend in long-term interest rates, rising oil prices, falling high yield bond markets, financial market turmoil due to the credit crunch, lack of creditworthiness of banks in the EU and the political situation, concerns about a global economic slowdown due to trade wars, and geopolitical risks in the Middle East and East Asia.

 

The latest LIBOR rates are calm and there is no sign of financial instability. 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 105 yen to 106 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. will release the second estimate of fourth quarter GDP, along with durable goods orders and personal income and spending. Other noteworthy releases include the Eurozone Economic Survey, UK employment data, Chinese housing prices, and Japanese industrial production and retail sales. The central banks of South Korea and New Zealand are scheduled to decide on their monetary policies.

 

Last week, the Nikkei 225 exceeded the assumed range. The upper price was about 680 yen above the assumed line and the lower price was about 870 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +2σ (currently around JPY30,500) on the upside and the 25-day line (currently around JPY28,980) on the downside.