[Present state recognition of fundamental]
Last week in the US, stock indices rose as speculation of an early interest rate rise receded following the Fed chairman's testimony to Congress that "the rise in inflation is temporary".
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 that the Japanese market is 2.53 points cheaper than the U.S. 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 22.5 and the Nikkei 225's expected PER of 14.1 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 GDP growth rate difference between Japan and the U.S. in 2021 expands by another 2.39 percentage points compared to the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the PER of the Nikkei 225 stocks for the current fiscal year is about 21.8, or if the Nikkei 225 is about 45060 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 15990 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 positive. 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 8.9%, an improvement of 3.0 points from three months ago. In addition, the profit growth rate was +28.6%, an improvement of 22.6% points from three months ago.
③ Long-term interest rates in the United States rose, widening the interest rate gap between Japan and the United States from 1.40 to 1.48, and the yen weakened from the 109-yen level to the 111-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 third week of June was overbought, the fourth week of June was likely overbought, and this week is expected to be overbought. Last week, of the five points, ① was 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 24.5 points (about 1310 yen in terms of the Nikkei 225) over the medium to long term in terms of the 200-day deviation from the NASDAQ. On the other hand, it is undervalued by 3.4 points (about 990 yen in terms of the Nikkei 225) of the 200-day divergence from NYDow.
The Nikkei 225 is above the clouds in the Ichimoku Kinko table. The total deviation rate was +7.2%, which has expanded positive width compared to last week. The 200-day moving average deviation rate was +6.6 which has been reduced positive width. As the 3 factors are positive, the "green light" is lit in the medium term trend.
The Nikkei 225 is above the 25 day line and the 9 day 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 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]
On a fundamental basis, the US market has seen a decline in concerns about the US-China trade conflict and North Korea, but risks include US interest rate hikes, rising long-term interest rates, rising oil prices, falling high-yield bond markets, financial market turmoil due to the credit crunch, EU bank credit shortages and the political situation, fears of a global economic slowdown due to trade wars, and geopolitical risks in the Middle East and East Asia.
The most recent LIBOR rates are showing signs of rising, and caution is advised. 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.
If we analyse the currency markets, we can see that the yen has been moving gently higher in 2020, but will weaken in 2021. This week, we expect the yen to be in the \110 to \111 range.
This week, the U.S. employment report will be released, which is expected to show signs of a gradual employment recovery. Also of interest will be the global manufacturing PMI survey and the OPEC+ meeting, which is expected to guide crude oil production plans. Other important data include the U.S. foreign trade balance and construction spending, the U.K. first quarter GDP and current account updates, Eurozone inflation and business confidence, and Japan's Tankan, industrial production, and retail sales.
Last week, the Nikkei 225 went above and below the expected range. The upper price was about 290 yen above the assumed line and the lower price was about 220 yen below the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +2σ (currently around 29460 yen) on the upside and the 25-day line (currently around 28890 yen) on the downside.
