[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose. However, individual stocks were mixed due to the impact of rising oil prices and long-term interest rates.
Weekly volatility NY Dow: +0.31%, NASAQ: +1.98%, S&P 500: +1.79%.
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 1.45 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 19.9 and the Nikkei 225's expected PER of 13.6 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 1.45 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 17.0, or if the Nikkei 225 is about 35070 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 6920 yen in the medium to long term.
From a fundamental perspective, the Japanese market can be said to be unattractive for6920 yen.
The weakness in the Japanese market was magnified as the P/E ratio of the S&P 500 rose.
[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 was positive. The daily footstep is in the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was positive. The daily footstep is in the 200-day line and the clouds of the equilibrium chart. This week, we will be watching to see if the NYDow can return above the Ichimoku Chart cloud.
② As a result of the announcement of quarterly financial results, the forecasted ROE of Nikkei 225 stocks was 9.2%, an improvement of 0.1 points from three months ago. The profit growth rate was +28.9%, 6.1 points worse than three months ago.
③ U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 1.95 to 2.24, moving the dollar against the yen in the range of ¥119 to ¥122. The dollar index rose +0.59 on 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 March was oversold, the fourth week of March was likely oversold, and this week is expected to be oversold. Of the five points last week, ① and ③ were bullish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, the difference in 200-day divergence from the NASDAQ is relatively high by 3.5 points (about 990 yen when calculated for the Nikkei 225) over the medium to long term. On the other hand, the 200-day divergence from the NYDow is 0.0 points in the medium to long term (about 0 yen in terms of the Nikkei 225), which is the same level.
During the week, the weakness of the Japanese market relative to the U.S. market has dissipated. Although volatility in the U.S. market is a bit higher, the VIX is down from last week at 20.81, and investor sentiment toward uncertainty has improved considerably.
The Nikkei 225 is above the 25-day and 9-day lines. The "green light" has been given for the short-term trend.
The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +8.7%, turning ma-plus compared to last week, and the divergence from the 200-day moving average was -0.4%, narrowing the negative range. Since the two factors are positive, a "yellow signal" is lit in the medium-term trend.
In the US market, the NYDow is above the 9-day and 25-day lines but below the 200-day line. It is in the clouds on the Ichimoku Kinko Chart. The NASDAQ is also above the 9-day and 25-day lines, but below the 200-day line. It is in the clouds on the Ichimoku Kinko Chart.
This is a "green light" in the short term and a "yellow 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.
Looking at the technical aspects, the U.S. market is in a medium-term no trend and a short-term uptrend. The Japanese market is in a medium-term no trend and 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 122 to 120 yen.
This week, the U.S. jobs report will likely be the focus of attention. In addition, German CPI will be released, as well as U.S. and Canadian GDP. Other economic indicators will include the U.S. S&P Case-Shiller Home Price Index for January, the CB Consumer Confidence Index for March, and the ISM Manufacturing Index for March.
Last week, the Nikkei 225 moved mostly within its expected range. The upside was about 40 yen above the assumed line and the downside was about 810 yen above the assumed line. This week, the Nikkei 225 is expected to move between Bollinger Band +2σ (currently around 28310 yen) on the upside and Bollinger Band +1σ (currently around 27340 yen) on the downside.
This week, the Nikkei 225 reached the Bollinger Band +2σ and bounced off the 200-day line, so it is likely to pause in the near-term.
