Outlook for the Nikkei average this week [13-February-2022]

 [Present state recognition of fundamental]

In the U.S. market last week, stock indices fell due to inflation and caution over the Russian military invasion of Ukraine.

Weekly Volatility NY Dow: -1.00%, NASAQ: -2.18%, S&P 500: -1.82%.

                                       

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 0.87 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 20.1 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 0.87 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 15.7, or if the Nikkei 225 is about 31480 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 3780 yen in the medium to long term.

 

From a fundamental point of view, it can be said that the Japanese market is unattractive for 3780 yen.

Although the weakness in the Japanese market seems to have eased, it is likely to be adjusted by the decline in the Japanese market at the beginning of the week since last Friday was a holiday.

 

[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 negative. The daily footstep is under the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was negative. 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 9.1%, This is the same level as three months ago. The profit growth rate was +31.4%, an improvement of 1.0 points from three months ago.

③    Despite the rise in U.S. long-term interest rates, the interest rate gap between the U.S. and Japan remained unchanged at 1.72 to 1.72, and the dollar moved up and down in the range of 114 yen to 116 yen. The dollar index rose +0.58% 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 first week of February was likely oversold and the second week of February was likely overbought; this week is expected to be oversold. Last week, of the five points, ① and ③ were bullish in the first half of the week. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is overvalued by 3.1 points (about 860 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 2.7 points (about 750 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. The U.S. market experienced increased volatility over the weekend, with the VIX rising to 27. Investors' anxiety levels rose sharply.

 

The Nikkei 225 is below the cloud in the equilibrium table. The total divergence rate widened to -9.8% compared to last week. The divergence from the 200-day moving average widened to -4.2%, and three factors are negative, indicating a "red light" in the medium-term trend.

The Nikkei 225 is below the 25-day but above 9-day lines. In the short-term trend, the "yellow light" is on.

 

In the U.S. markets, NYDow is below the 200-day lines and the 25-day line and 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 and 9-day lines. It is below the cloud on the equilibrium chart.

It is a "red 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 no trend and a short-term no trend. The Japanese market is in a medium-term down trend and in a short-term 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 116 yen.

 

This week, the U.S. Producer Price Index will be in focus. In addition, CPI for China, the U.K., and Canada will be released, and Turkey's central bank will make a monetary policy decision. Other economic indicators to be released include the Federal Reserve Bank of the United States business climate index, retail sales, and industrial production index. Meanwhile, market volatility is expected to continue.

 

Last week, the Nikkei 225 was above the assumed range. The upside was about 260 yen above the assumed line and the downside was about 860 yen above the assumed line. The expected range of the Nikkei 225 for this week is the 25-day line (currently around JPY27630) on the upside and the Bollinger Band -2σ (currently around JPY26370) on the downside.

 

This week, the market is expected to fall sharply at the beginning of the week. After that, the market is likely to be influenced by changes in the volatility index and long-term interest rates.