[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose due to a decline in long-term interest rates and a series of favorable results that exceeded market expectations.
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 0.97 points cheaper than the U.S. market, considering the announced OECD nominal GDP forecast for 2022. The reason for the undervaluation is the difference between the S&P 500's PER of 22.4 and the Nikkei 225's expected PER of 13.4 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 0.97 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 15.5, or if the Nikkei 225 is about 31670 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 4130 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 +29.3%, an improvement of 19.8% 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 1.28 to 1.28, the yen weakened in the range of 109 yen to 110 yen.
④ The OECD's nominal GDP growth forecast for Japan and the U.S. for 2022 has been revised, and Japan is expected to be +2.72% and the U.S. +6.01%, so the Japanese market is 3.29 percentage points inferior in this aspect.
⑤ The second week of July and the third week of July were most likely oversold, and this week is expected to be oversold. Last week, of the five points, ① and ③ 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 12.4 points (about 3420 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 10.2 points (about 2810 yen in terms of the Nikkei 225) of the 200-day divergence from NYDow.
The Nikkei 225 is below the cloud in the equilibrium table. The divergence from the 200-day moving average turned negative at -0.6%. 3 factors are negative, so the medium-term trend has turned red.
The Nikkei 225 is below the 9-day and 25-day lines. The short-term trend has turned red.
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]
Looking at the U.S. market from a fundamental point of view, concerns about U.S. interest rate hikes, rising long-term interest rates, rising crude oil prices, U.S.-China trade frictions, and problems in North Korea have receded, but risk factors include declines in the high-yield bond market, 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 the spread of the new coronavirus, and geopolitical risks in the Middle East and East Asia.
The most recent LIBOR rate has shown signs of rising, and caution is required; even 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 downwar trend in the medium term and downward trend in the short term.
An analysis of the currency markets shows that the yen was moving gently higher in 2020, but has reversed course to weaker in 2021. This week, we expect the yen to be in the range of 109 to 110 yen.
This week marks the busiest part of the earnings season, with Apple, Facebook, Microsoft, Alphabet and Amazon releasing their quarterly results and the Fed deciding on monetary policy. In terms of economic indicators, the U.S. will release preliminary GDP figures for the second quarter, as well as durable goods orders and personal consumption expenditures. The Eurozone GDP will also be released. In addition, inflation rates for the Eurozone and Australia, Japan's retail sales and industrial production, and China's NBS PMI survey will also be closely watched.
Last week, the Nikkei 225 remained within the expected range. The upper price was about 130 yen below the assumed line and the lower price was about 150 yen below the assumed line. The expected range for the Nikkei 225 this week is between the 25-day line (currently around 28490 yen) on the upside and the Bollinger Band -2σ (currently around 27530 yen) on the downside.
