[Present state recognition of fundamental]
In the U.S. market last week, stock indices moved in mixed fashion, with expectations of improved business sentiment due to the steady spread of vaccines, despite warnings of a rise in 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 0.07 points higher than that of the U.S. market, considering the announced OECD nominal GDP forecast for 2021. The reason for the premium is the difference between the S&P 500's P/E ratio of 22.6 and the Nikkei 225's expected P/E ratio of 22.9 for the current fiscal year, as well as the difference in interest rates and GDP growth between the U.S. and Japan.
This means that if the difference in GDP growth rates between Japan and the U.S. in 2021 is further reduced by 0.07 percentage points compared to the OECD forecast (upwardly revised for Japan or downwardly revised for the U.S.), or if the P/E ratio of the Nikkei 225 stocks for the current fiscal year is about 22.5, or if the Nikkei 225 is about 28700 yen compared to the current price of the Nikkei 225 The Japanese market is overvalued by about 480 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 +2.72%) 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 but under 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 1.1 points from three months ago. In addition, the profit growth rate was +5.6%, an improvement of 25.9% 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 1.62% to 1.61%, the yen weakened in the range of 108 yen to 109 yen.
④ The OECD's nominal GDP growth forecast for Japan and the U.S. for 2021 has been revised, and Japan is expected to be +2.72% and the U.S. +4.35%, so the Japanese market is 1.63 percentage points inferior in this aspect.
⑤ March 3 week was overbought and March 4 week was oversold, most likely, and this week is expected to be overbought. Last week, of the five points, ① was bearish. This week, ①②③⑤ are expected to have an impact.
[Technical viewpoint]
From a technical standpoint, the Japanese market is overvalued by 5.4 points over the medium to long term in terms of the 200-day deviation from the NASDAQ (about 1580 yen in terms of the Nikkei 225). Compared to last week, the overvalued range has increased. On the other hand, the 200-day divergence from NYDow is 1.4 points (about 410 yen to the Nikkei 225) overvalued in the medium to long term.
The Nikkei 225 is in the clouds in the Ichimoku Kinko table. The total deviation rate was +17.0%, which has shrank positive width compared to last week. The 200-day moving average deviation rate was +15.2 which has shrank in the positive width. As the tow factors are positive, the "yellow 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 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 but under the 25 day line and the 9 day line. It is under the clouds of the Ichimoku Kinko table.
In the short term, the "yellow light" is lit, and in the medium term, the "yellow 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, favorable factors include the zero interest rate policy in the U.S. and the Fed's direct financial support to corporations including junk bond purchases and $2 trillion in economic stimulus. In addition to the Bank of Japan's monetary easing measures, such as setting a 2% inflation target, introducing negative interest rates and unlimited purchases of JGBs and ETFs ranging from 0 to 12 trillion yen, the Japanese government's economic measures exceeding those taken during the Lehman Shock, the EU's establishment of a 92 trillion yen Corona Recovery Fund, and the ECB's announcement of deepening negative interest rates and expanding quantitative easing.
Looking at the technical aspect, the US market is no trend in the medium term and no trend in the short term. The Japanese market is upward trend in the medium term and downward trend in the short term.
Analyzing the foreign exchange market, the yen had been moving gently in the direction of appreciation for the past year, but in the past two months, it has been rapidly reversing the direction of depreciation. This week, we expect the yen to be in the 109 to 110 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 the US employment report this week, which will probably add to signs of
a gradual job recovery, as well as worldwide manufacturing PMI surveys and an
OPEC+ meeting that is expected to offer guidance into the coalition's
production plan from May. Elsewhere, key data to watch for include US
construction spending; UK and Russia Q4 GDP updates; Eurozone inflation and
business morale; Japan's tankan survey, industrial production and retail sales;
Australia, India and Turkey foreign trade figures.
Last week, the Nikkei 225 fell below the assumed range. The upper price was about 620 yen below the assumed line and the lower price was about 600 yen below the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ (currently around 29920 yen) on the upside and the Bollinger Band -1σ (currently around 28900 yen) on the downside.
