[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose as caution over the spread of the Omicron variant of the new coronavirus eased.
Weekly Change NY Dow: +1.65%, NASDAQ: +3.19%, S&P 500: +2.28%
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 1.18 points cheaper than the U.S. market, considering the announced OECD nominal GDP forecast for 2023. The reason for the undervaluation is the difference between the S&P 500's PER of 22.8 and the Nikkei 225's expected PER of 13.8 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 1.18 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 16.5, or if the Nikkei 225 is about 34400 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 5620 yen in the medium to long term.
From a fundamental point of view, the Japanese market is unattractive for 5620 yen.
Compared to last week, the undervaluation has widened. This is mainly due to the rise in long-term interest rates in the US.
[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 2023 GDP estimate (now +1.8%) 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 lineand 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. This week, I will focus on whether NYDow can hold above the 200-day line or not.
② As a result of the announcement of quarterly financial results, the forecasted ROE of Nikkei 225 stocks was 9.2%, the same level as three months ago. In addition, the profit growth rate was +35.1%, 0.4 percentage points worse than three months ago.
③ Long-term interest rates in the U.S. rose and the interest rate gap between Japan and the U.S. widened from 1.36 to 1.43, causing the dollar to weaken against the yen in the range of 113 yen to 114 yen. The dollar index fell -0.63% for the week.
④ The OECD's nominal GDP growth forecast for Japan and the U.S. for 2023 has been released, and Japan is expected to grow by +1.8% and the U.S. by +4.9%, so the Japanese market is 3.1 percentage points inferior in this aspect.
⑤ The third week of December was oversold, the fourth week of December was likely oversold, and this week is expected to be oversold. Last week, of the five points, ①and ③ were bullish. 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 7.4 points (about 2130 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 3.8 points (about 1090 yen in terms of the Nikkei 225) undervalued in the medium to long term.
For the week, the weakness in the Japanese market increased. The Japanese market was not as volatile as the U.S. market, as caution about the spread of the Omicron virus did not ease as much as in the U.S.
The Nikkei 225 is below the cloud in the equilibrium table. The total divergence rate was -0.6%, narrowing the negative range compared to last week. The divergence from the 200-day moving average was -0.2%, narrowing the negative range. Since all three factors are negative, the medium-term trend has a "red light".
The Nikkei 225 is above the 25-day and 9-day lines. The short-term trend has a "green light".
In the U.S. market, NYDow is above the 200-day and the 25-day and the 9-day line, It is above the cloud on the equilibrium chart.
Nasdaq is above the 200-day and the 9-day line and the 25-day line, It is above the cloud on the equilibrium chart.
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 Ukraine and East Asia.
Recent LIBOR rates have been on an upward trend and require continued attention. 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 large-scale economic measures by the US 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 government bonds and ETFs of up to 12 trillion yen, there are also economic measures by the Japanese government. In addition, 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 have decided to reduce their bond purchases and are looking 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 uptrend. The Japanese market is in a medium-term downtrend but in a short-term 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 113 to 114yen.
This week will see the release of U.S. home prices and tentative home sales, ECB monetary indicators, inflation data from Spain and Russia, Chinese PMI, and retail sales and industrial production from Japan and South Korea.
Last week, the Nikkei 225 moved above the expected range. The upside was about 270 yen above the assumed line and the downside was about 500 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 29700 yen) and the downside will be between the 25-day line (currently around 28600 yen).
This week will be a test of how close we can get to the upper resistance line of the triangle (around 29400 yen).
