[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose as major companies continued to announce earnings results that exceeded market expectations.
On the other hand, in the medium to long term, there are concerns about accelerating inflation due to rising energy costs, production and supply costs, as well as concerns about the bursting of the real estate bubble and economic slowdown in China. There are also concerns about a slowdown in the global economy due to supply chain disruptions. Therefore, there are also concerns about the arrival of stagflation. Furthermore, we need to continue to pay attention to geopolitical risks in East Asia, the Middle East, and Ukraine.
The difference in the yield spread between the Japanese and U.S. markets is that the Japanese market is 0.83 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 21.2 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 0.83 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 16.0, or if the Nikkei 225 is about 32640 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3830 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 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 keep 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 9.2%, an improvement of 0.3 points from three months ago. In addition, the profit growth rate was +33.2%, an improvement of 3.8% points from three months ago.
③ Although long-term interest rates in the U.S. rose and the interest rate gap between Japan and the U.S. widened from 1.50 to 1.54, the dollar moved against the yen in the range of 114 yen to 113 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 It is highly likely that the second week of October was overbought and the third week of October was oversold, and this week is expected to be overbought. Last week, of the five points, ① was a bullish factor and ⑤ was a bearish factor. 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 6.8 points (about 1960 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 5.7 points (about 1640 yen in terms of the Nikkei 225) undervalued in the medium to long term.
The weakness in the Japanese market seems to have been magnified by the expectation that the number of Liberal Democratic Party (LDP) members in the House of Representatives election will be considerably reduced, leading to a sell-off in the Japanese market.
The Nikkei 225 is below the cloud in the equilibrium table. The divergence from the 200-day moving average was +0.0%, a smaller positive gap compared to last week.
Since2 factors are positive, the medium-term trend is "yellow light".
The Nikkei 225 is below the 25-day line, but above the 9-day line. The yellow light is on for the short-term trend.
In the U.S. market, NYDow is above the 200-day and the 25-day and the 9-day line, and above the equilibrium cloud.
Nasdaq is above the 200-day and the 25-day lines and the 9-day line, and above the cloud within the equilibrium cloud.
It is a "green light" in the short term and a "green 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 problems in North Korea have receded, but risk factors include interest rate hikes in the U.S., rising long-term interest rates, rising oil prices, turmoil in financial markets due to the bursting of the real estate bubble and credit crunch in China, 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 upward trend. The Japanese market is in a medium-term upward trend 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 114 to 112 yen.
This week marks the busiest part of the earnings season, with Apple, Facebook, Microsoft, Alphabet and Amazon announcing their results. In addition, the central banks of the Eurozone, Japan, and Canada will make monetary policy decisions. Important economic indicators include Q3 GDP data from the US and Eurozone, inflation in Australia, industrial production in Japan, and PMI surveys in China.
Last week, the Nikkei 225 moved within the expected range. The upper price was about 650 yen below the assumed line and the lower price was about 380 yen above the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ (currently around 29900 yen) on the upside and the Bollinger Band -1σ (currently around 28170 yen) on the downside.
