Outlook for the Nikkei average this week [12-September-2021]

 [Present state recognition of fundamental]

Last week, stock indices in the U.S. market fell due to concerns that the spread of the new coronavirus would slow the economic recovery.

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 0.61 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 22.1 and the Nikkei 225's expected PER of 13.5 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 0.61 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 15.4, or if the Nikkei 225 is about 33230 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 2850 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 negative. The daily footstep is above the 200-day line but in the clouds of the Ichimoku kinko table. NASDAQ weekly trend was negative. 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 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 0.4 points from three months ago. In addition, the profit growth rate was +35.1%, an improvement of 8.1% 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 1.29 to 1.30, and the dollar faltered 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 first week of September was overbought, the second week of September was likely overbought, and this week is expected to be overbought. Last week, of the five points, ⑤ was 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 2.4 points (about 730 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 5.4 points (about 1,640 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 overall divergence rate was +21.2%, and the margin of error increased compared to last week. The divergence from the 200-day moving average was +6.9%, and the positive range expanded.

Since all three factors are positive, the medium-term trend is "green light".

The Nikkei 225 is above the 9-day and 25-day lines. The "green light" has been given for the short-term trend.

 

In the U.S. market, NYDow is above the 200-day line, but below the 9-day and 25-day lines, and within the equilibrium cloud.

Nasdaq is above the 200-day and 25-day lines, but below the 9-day line, and above the cloud on the Ichimoku Equilibrium chart.

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 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 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, while the short-term is no trend. The Japanese market is in a medium-term uptrend while the short-term trend is uptrend.

 

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, important inflation reports will be released in the US and the UK. Investors will be watching for signs that the recent upward pressure on prices is easing amid slowing economic growth. Other important data releases include retail sales and industrial production in the US and China, and employment statistics in the UK and Australia. Trade statistics will also be released for the Eurozone and Japan.

 

Last week, the Nikkei 225 was above the expected range. The upside was about 160 yen above the assumed line and the downside was about 810 yen above the assumed line. The assumed range of the Nikkei 225 for this week is that the upside will be at the Bollinger Band +2σ (currently around 30230 yen) and the downside will be between the Bollinger Band +1σ (currently around 29250 yen).