Outlook for the Nikkei average this week [18-April-2021]

 [Present state recognition of fundamental]

In the U.S. market last week, stock indices rose due to the release of strong economic indicators and expectations of improved business confidence due to the spread of vaccines. 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 0.09 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 23.5 and the Nikkei 225's expected PER of 22.3 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 0.09 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 22.8, or if the Nikkei 225 is about 30310 yen compared to the current price of the Nikkei 225 This means that the Japanese market is about 630 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 positive. The daily footstep is above the 200-day line and the clouds of the Ichimoku kinko table. NASDAQ weekly trend was positive. 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 1.1 points from three months ago. In addition, the profit growth rate was +9.3%, an improvement of 28.9% points from three months ago.

③    Long-term interest rates in the U.S. declined, and the interest rate gap between Japan and the U.S. narrowed from 1.56% to 1.50%, and the yen moved in the direction of appreciation from the 109-yen level to the 108-yen level.

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 first week of April was overbought, the second week of April was likely overbought, and this week is expected to be overbought. Last week, of the five points, ③ was bearish. This week, ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

From a technical point of view, the Japanese market is overvalued in the medium to long term by 0.1 points (about 30 yen in terms of the Nikkei 225) in terms of the 200-day deviation from the NASDAQ. Compared to last week, the margin of appreciation has narrowed. On the other hand, the stock is overvalued by 0.7 points (about 210 yen in relation to the Nikkei 225) in the medium-to-long term in terms of 200-day divergence from NYDow.

 

The Nikkei 225 is above the clouds in the Ichimoku Kinko table. The total deviation rate was +17.5%, which has expanded positive width compared to last week. The 200-day moving average deviation rate was +14.8 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 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 upward trend in the medium term and upward 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 two weeks, the yen has moved higher. We expect the yen to be in the ¥108 to ¥107 range this week.

 

The Q1 earnings season continues this week, with companies such as IBM, Netflix, Intel, Johnson & Johnson and P&G reporting their results. Elsewhere, flash PMI surveys for the US, UK, Eurozone, Japan and Australia will be keenly watched, while central banks in the Euro Area, China, Indonesia, Canada and Russia will be deciding on monetary policy. Other key data to follow include: US existing and new home sales; UK inflation data and unemployment rate; Eurozone consumer confidence; Japan trade balance and inflation; and Australia retail sales.

 

Last week, the Nikkei 225 moved within the expected range. The upper price was about 30 yen below the assumed line and the lower price was about 420 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ (currently around 29950 yen) on the upside and the Bollinger Band -1σ (currently around 29130 yen) on the downside.