[Present state recognition of fundamental]
In the U.S. market last week, stock indices eventually rose due to favorable earnings announcements by mainstay stocks, although they fell sharply in the first half of the week as the FOMC showed a more aggressive policy on monetary tightening than expected.
Weekly change NY Dow:+1.34%, NASAQ:+0.01%, S&P500:+0.77%.
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 0.98 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 19.7 and the Nikkei 225's expected PER of 13.3 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 0.98 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 15.2, or if the Nikkei 225 is about 30710 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3990 yen in the medium to long term.
From a fundamental point of view, it can be said that the Japanese market is unattractive for 3,990 yen.
The relative weakness of the Japanese market increased as the US market's EPS increased.
[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
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 under the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was positive. The daily footstep is under the 200-day line and the clouds of the equilibrium chart. This week, we will be watching to see if NYDow can get back above the 200-day line.
② As a result of the announcement of the quarterly financial results, the forecasted ROE of Nikkei 225 stocks was 9.2%. This is the same level as three months ago. In addition, the profit growth rate was +35.1%, an improvement of 1.6 points from three months ago.
③ The U.S. dollar weakened against the yen in the range of 113 yen to 115 yen, although the interest rate gap between the U.S. and Japan narrowed from 1.63 to 1.61 as U.S. long-term interest rates rose. The dollar index rose +1.65% 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 January was oversold, the fourth week of January was likely oversold, and this week is expected to be oversold. Last week, of the five points, ①and ⑤ were bearish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
From a technical point of view, the Japanese market is undervalued in the medium to long term by 0.2 points (about 50 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 6.1 points (about 1630 yen in terms of the Nikkei 225) undervalued over the medium to long term.
The weakness of the Japanese market against the US market increased during the week. The volatility of the US and Japanese markets changed to the same level. The volatility index for both the U.S. and Japanese markets fell below 30 at 27. Investor sentiment improved slightly over the weekend.
The Nikkei 225 is below the cloud in the equilibrium table. The total divergence rate widened to -18.9% compared to last week. The divergence from the 200-day moving average widened to -6.9%, and three factors are negative, indicating a "red light" in the medium-term trend.
The Nikkei 225 is below the 25-day and 9-day lines. The short-term trend is showing a "red light".
In the U.S. markets, NYDow is below the 200-day line and the 25-day lines but above the 9-day line, and the equilibrium cloud. It is below the cloud on the equilibrium chart.
The NASDAQ is below the 200-day line, and the 25-day and 9-day lines. It is below the cloud on the equilibrium chart.
It is a "yellow light" in the short term and a "red 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 down trend and a short-term no trend. The Japanese market is in a medium-term down trend and in a short-term down 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 116 yen.
This week, major economic data will be released, including the U.S. jobs report and manufacturing index, and Eurozone GDP and inflation. In addition, central banks in the U.K., Australia, and the Eurozone are expected to make monetary policy decisions, and the OPEC+ meeting is expected to provide guidance on oil production plans starting in March. In addition, GM, Alphabet, Meta, Amazon, and Ford are scheduled to release their quarterly results.
Last week, the Nikkei 225 moved within the expected range. The upper price was about 320 yen below the assumed line and the lower price was about 30 yen above the assumed line.
The expected range of the Nikkei 225 for this week is between the 25-day line (currently around 28190 yen) on the upside and the Bollinger Band -2σ (currently around 25580 yen) on the downside.
This week, a rebound to the 25-day line on the downside is expected.
