[Present state recognition of fundamental]
Last week, the U.S. market fell sharply due to the invasion of Ukraine by Russian troops, but once the details of the sanctions by Western countries were communicated, the stock indexes ended the week with a significant reversal.
Weekly Volatility NY Dow: -0.06%, NASAQ: +1.08%, S&P 500: +0.82%.
On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, concerns about a slowdown in the global economy due to prolonged supply chain disruptions, and concerns about the bursting of the real estate bubble and economic slowdown in China. This also raises concerns about the advent of stagflation. Furthermore, we need to continue to pay attention to geopolitical risks in East Asia and the Middle East.
The difference in the yield spread between the Japanese and U.S. markets is that the Japanese market is 1.30 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 19.5 and the Nikkei 225's expected PER of 12.8 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 1.30 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 15.5, or if the Nikkei 225 is about 31780 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 5300 yen in the medium to long term.
From a fundamental point of view, it can be said that the Japanese market is unattractive for 5300 yen.
[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, the NY Dow weekly trend turned from negative to positive. The daily footstep is under the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend turned from negative to 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 25-day line.
② As a result of the announcement of quarterly financial results, the forecasted ROE of Nikkei 225 stocks was 9.3%, an improvement of 0.2 points from three months ago. The profit growth rate was +29.4%, 5.5 points worse than three months ago.
③ Long-term interest rates in the U.S. rose and the interest rate gap between the U.S. and Japan widened from 1.72 to 1.76, causing the dollar to weaken against the yen in the 114-115 yen range. The dollar index rose +0.45% 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 February was overbought and it is highly likely that the fourth week of February was oversold, and this week is expected to be oversold. Last week, of the five points, ① was bearish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is overvalued by 0.3 points (about 80 yen in terms of the Nikkei 225) over the medium to long term in terms of the gap between the 200-day divergence rate and the NASDAQ. On the other hand, the 200-day divergence from NYDow is 4.2 points (about 1110 yen in terms of the Nikkei 225) undervalued over the medium to long term.
The weakness of the Japanese market against the US market improved during the week. Volatility in the US market is high, with the VIX at 27, the same level as last week. Investor sentiment continues to be high.
The Nikkei 225 is below the cloud in the equilibrium table. The total divergence rate widened to -15.6% compared to last week. The divergence from the 200-day moving average widened to -7,10%, 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. In the short-term trend, the "red light" is on.
In the U.S. markets, NYDow is below the 200-day lines and the 25-day line but above the 9-day line. It is below the cloud on the equilibrium chart.
The NASDAQ is below the 200-day line and the 25-day but above 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 Ukraine conflict, 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.
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 downtrend and a short-term no trend. The Japanese market is in a medium-term downtrend and also in a short-term downtrend.
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 115 to 114 yen.
This week, the U.S. jobs report for February will be in focus. In addition, PMIs for China, the Eurozone, and the UK will be released, and the Australian central bank will make a monetary policy decision. Among other economic indicators, the ISM Non-Manufacturing Index for February and Manufacturing Orders for January will also be released in the US. Meanwhile, market volatility is expected to continue.
Last week, the Nikkei 225 fell below the assumed range. The upper price was about 310 yen below the assumed line and the lower price was about 480 yen below the assumed line. The expected range of the Nikkei 225 for this week is between the 25-day line (currently around 27100 yen) on the upside and the Bollinger Band -2σ (currently around 26190 yen) on the downside.
The volatility index is expected to remain high this week, so the 25-day line is likely to be the limit of the return.
