[Present state recognition of fundamental]
Last week, stock indices in the U.S. market declined due to the upward trend in the number of new coronavirus infections worldwide and expectations of higher capital gains taxes. On the other hand, in the medium to long term, there are concerns about inflation due to side effects of excess liquidity, and concerns about lack of creditworthiness of banks and credit crunch due to defaults by funds and other institutions. There are also concerns about the collapse of China's real estate bubble and economic slowdown, as well as concerns about a global economic slowdown due to trade wars and other factors. Furthermore, geopolitical risks in East Asia, the Middle East, and Ukraine continue to require attention.
The difference in the yield spread between the Japanese and U.S. markets is 0.25 points cheaper than the Japanese market, considering the announced OECD nominal GDP forecast for 2021. The reason for the undervaluation is the difference between the S&P 500's PER of 23.6 and the Nikkei 225's expected PER of 21.7 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 expands by another 0.25 points compared to the OECD forecast (Japan downwardly revised or the U.S. upwardly revised), or if the PER of the Nikkei 225 stocks for the current fiscal year is about 22.9, or if the Nikkei 225 is about 30670 yen compared to the current price of the Nikkei 225 This means that the Japanese market is about 1650 yen cheaper than the U.S. market in the mid-to-long term and is almost in equilibrium.
[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 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 above 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 5.9%, an improvement of 1.2 points from three months ago. In addition, the profit growth rate was +9.3%, an improvement of 29.0% points from three months ago.
③ Long-term interest rates in the U.S. declined, and although the interest rate difference between Japan and the U.S. remained unchanged at 1.50% to 1.50%, the yen moved higher in the range of 108 yen to 107 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 The second week of April was oversold, the third week of April was likely oversold, and this week is expected to be oversold. Last week, among the five points, ①, ③ were bearish. This week, ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 2.3 points (about 670 yen in terms of the Nikkei 225) over the medium to long term in terms of the 200-day divergence from the NASDAQ. This is a change from last week. On the other hand, the stock is undervalued by 2.7 points (about 780 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 in the clouds in the Ichimoku Kinko table. The total deviation rate was +9.8%, which has shrank positive width compared to last week. The 200-day moving average deviation rate was +11,5 which has shrank the positive width. As the two 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 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 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 upward trend in the medium term and upward trend in the short term. The Japanese market is no trend in the medium term and downward trend in the short term.
Analysis of the currency market shows that the yen had been moving gently in the direction of appreciation for the past year. In the past two months, the yen had rapidly weakened, but in the past 3 weeks, the yen has moved higher. We expect the yen to be in the ¥108 to ¥107 range this week.
This week marks the busiest part of the earnings season, with Apple, Facebook, Microsoft, Alphabet, and Amazon announcing their quarterly results. In addition, the central banks of the US and Japan will make monetary policy decisions. In terms of economic indicators, the U.S., Eurozone, and South Korea will release their GDP forecasts for the first quarter. Other scheduled releases include durable goods orders, personal income and spending in the U.S., business confidence and inflation in the euro zone, retail sales and industrial production in Japan, the NBS PMI survey in China, and inflation in Australia.
Last week, the Nikkei 225 fell below the assumed range. The upper price was about 140 yen below the assumed line and the lower price was about 590 yen below the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ (currently around 29800 yen) on the upside and the Bollinger Band -1σ (currently around 28960 yen) on the downside.
