Outlook for the Nikkei average this week [21-November-2021]

 [Present state recognition of fundamental]

In the U.S. market last week, stock indices moved in mixed fashion as sensitive stocks were sold while tech stocks were bought.

Weekly Volatility NY Dow: -1.38%, NASAQ: +1.24%, S&P 500: +0.32

 

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 0.75 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 14.3 or 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 0.75 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 33300 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3550 yen in the medium to long term.

 

From a fundamental point of view, we can say that the Japanese market is unattractive for 3,550 yen.

Although the undervaluation has widened compared to last week, it is mainly due to the weakness of Japanese stocks and the decline in US long-term interest rates.

 

[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 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 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE of Nikkei 225 stocks was 9.1%, the same level as three months ago. In addition, the profit growth rate was +34.1%, 1.1 percentage points worse than three months ago.

③    The U.S. dollar moved up and down in the range of 113 yen to 114 yen as U.S. long-term interest rates declined and the interest rate gap between the U.S. and Japan narrowed from 1.49 to 1.48. The dollar index rose +0.99% for the week.

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 November was oversold, the third week of November was likely oversold, and this week is expected to be oversold. Last week, of the five points, ⑤was bearish. 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 9.1 points (about 2710 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 1.1 points (about 330 yen in terms of the Nikkei 225) undervalued in the medium to long term.

The Japanese market showed increased weakness versus the NASDAQ and improved weakness versus the NYDow. The mixed performance of the U.S. market is the main reason.

 

The Nikkei 225 is above the cloud in the equilibrium table. The total divergence rate was +7.4%, a smaller positive margin compared to last week. The divergence from the 200-day moving average was +2.8%, and the positive range expanded.

Since 3 factors are positive, the medium-term trend is "green light".

The Nikkei 225 is above the 9-day line, and the 25-day line. The green light is on for the short-term trend.

 

In the U.S. market, NYDow is above the 200-day and the 25-day but under 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 "yellow 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 zero interest rate policy in the U.S. and direct financial support to corporations by the Fed, including bond purchases, as well as large-scale economic measures by the government. 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. However, the ECB and the Fed are not in the same boat. However, the ECB and the Fed have decided to reduce their bond purchases and are searching for a time to raise interest rates.

 

From a technical standpoint, the U.S. market is in a medium-term uptrend and a short-term no trend. Japanese markets are uptrend in the medium term and uptrend 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 113 to 114 yen.

 

This week in the U.S., the week of Thanksgiving will be highlighted by the FOMC meeting minutes, personal consumption expenditures, and the Fed Chair's announcement; the November PMI will provide an update on the health of the economies of the U.S., Japan, the Eurozone, Germany, and the U.K. Investors will also be watching the coronavirus numbers as new lockdowns and restrictions are announced in Europe.

 

Last week, the Nikkei 225 fell below the assumed range. The upper price was about 560 yen below the assumed line and the lower price was about 230 yen below the assumed line. The expected range for the Nikkei 225 this week is between the Bollinger Band +1σ (currently around JPY29670) on the upside and the Bollinger Band -1σ (currently around JPY28940) on the downside.

 

The Nikkei 225 did not exceed the Bollinger Band +2σ (around 30,000 yen) last week. Selling pressure is strong and the expected range of the Nikkei 225 is likely to drop further this week.