[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose on the back of the FOMC's passage without any confusion and the temporary receding of caution over the debt problems of China Evergrande.
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 0.73 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 22.0 and the Nikkei 225's expected PER of 14.0 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 0.73 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 15.6, or if the Nikkei 225 is about 33690 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3440 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 but in the clouds of the equilibrium chart. NASDAQ weekly trend was positive. The daily footstep is above the 200-day line and the clouds of the equilibrium chart. It will be interesting to see if NYDow can get back above the cloud on the equilibrium chart.
② As a result of the announcement of the quarterly financial results, the expected ROE of the Nikkei 225 stocks was 9.1%, an improvement of 0.2 points from three months ago. In addition, the profit growth rate was +35.4%, an improvement of 6.9% points from three months ago.
③ Long-term interest rates in the U.S. rose, widening the interest rate gap between Japan and the U.S. from 1.32 to 1.40, and the dollar moved in the direction of a weaker yen 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 third and fourth weeks of September were likely overbought, 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 standpoint, it is undervalued in the medium to long term by 2.0 points (about 600 yen in terms of the Nikkei 225) in terms of the 200-day deviation from the NASDAQ. On the other hand, the 200-day divergence from NYDOW is 1.4 points (about 420 yen in terms of the Nikkei 225) overvalued in the medium to long term.
The Nikkei 225 is above the cloud in the equilibrium table. The total divergence rate was +15.6%, which is a smaller positive margin compared to last week. The divergence from the 200-day moving average was +5.8%, and the positive range narrowed.
Since all three factors are positive, the medium-term trend is "green light".
The Nikkei 225 is under the 9-day but above 25-day lines. The "yellow light" has been given for the short-term trend.
In the U.S. market, NYDow is above the 200-day and 9-day lines, but below the 25-day line, and within the equilibrium cloud.
Nasdaq is above the 200-day and 9-day lines but under the 9-day line, and above the cloud on the equilibrium cloud.
It is a " yellow light" in the short term and a "yellow light" in the medium term.
[Outlook for this week]
Looking at the U.S. market from a fundamental perspective, concerns about a slowdown in the global economy due to the spread of the new coronavirus, the lack of creditworthiness of banks in the EU and the political situation, the trade friction between the U.S. and China, and the problems in North Korea have receded, but risk factors include U.S. interest rate hikes, rising long-term interest rates, rising oil prices, falling high yield bond markets, financial market turmoil due to the credit crunch, and geopolitical risks in the Middle East and East Asia.
Although the latest LIBOR rates are on a downward trend, continued 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 US zero interest rate policy and the Fed's direct financial support to corporations including bond purchases and $2 trillion in economic stimulus. In addition to the Bank of Japan's monetary easing measures, including the setting of a 2% inflation target, the introduction of 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 deepening of negative interest rates and continuation of quantitative easing. In addition to the measures taken by the Japanese government, there are also economic measures beyond those taken during the Lehman Shock, the establishment of the 92 trillion yen Corona Recovery Fund by the EU, and the deepening of negative interest rates and continuation of quantitative easing by the ECB. However, the ECB has decided to reduce its bond purchases.
From a technical standpoint, the U.S. market is in a medium-term no trend, and the short-term is no trend. The Japanese market is in a medium-term uptrend and the short-term trend is no trend.
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 118 yen.
This week, investors will be keeping an eye on the ISM Manufacturing PMI and PCE inflation and the developments surrounding Chinese real estate developer Evergrande. Fed Chair Powell will testify on Coronavirus and CARES Act before the Senate and lawmakers will try to pass a funding plan to avoid a government shutdown on October 1st. Also, 2-days ECB Forum on Central Banking should give more clues on the monetary policy outlook. Traders will also pay attention to the outcome of the German federal election.
Last week, the Nikkei 225 was within the expected range. The upside was about 770 yen below the assumed line and the downside was about 100 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ +200 yen (currently around 30510 yen) on the upside and the 25-day line (currently around 29080 yen) on the downside.
