[Present state recognition of fundamental]
In the U.S. market last week, stock indexes fell as a broad range of stocks sold off on growing concerns that the Fed's aggressive monetary tightening would cool the economy.
Weekly volatility NY Dow: -0.78%, NASAQ: -2.63%, S&P 500: -2.13%.
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 2.10 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 19.4 and the Nikkei 225's expected PER of 13.0 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 2.10 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 17.8, or if the Nikkei 225 is about 37250 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 10140 yen in the medium to long term.
From a fundamental perspective, the Japanese market can be said to be unattractive for 10140 yen.
Weakness in the Japanese market widened as the long-term interest rate differential between the U.S. and Japan widened..
[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 Increase in profit forecast for the current fiscal year above the previous year's level
③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.
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 negative. The daily footstep is under the 200-day line but in 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 the NYDow can return above the 200-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 +29.0%, 6.3 points worse than three months ago.
③ U.S. long-term interest rates rose and the interest rate differential between Japan and the U.S. widened from 2.60 to 2.66, moving the yen against the dollar in the range of 126 to 129 yen. The dollar index rose +0.62% 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 second week of April was likely overbought, the third week of April was likely oversold, and this week is expected to be oversold. Of the five points last week, ①was bearish. 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 8.9 points (about 2410 yen when calculated for the Nikkei 225) over the medium to long term. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is undervalued by 0.1 points in the medium to long term (about 30 yen, which is calculated in the Nikkei 225).
Weakness in the Japanese market relative to the U.S. market narrowed during the week. Volatility in the U.S. market increased, with the VIX at 24.38, up from last week and still above 20, an indication of rising investor anxiety.
The Nikkei 225 is under the 25-day but above 9-day lines. The "yellow light" has been given for the short-term trend.
The Nikkei 225 is in the Ichimoku Kinko's cloud. The overall divergence was -4.8%, widening compared to last week. The deviation from the 200-day moving average was -3.6%, a smaller negative range. Since the two factors are negative, a "yellow signal" is lit for the medium-term trend.
In the US market, the NYDow is below 9-day and the 25-day and the 200-day line. It is in the clouds on the Ichimoku Kinko Chart. The NASDAQ is below the 9-day and the 25-day and the 200-day line and the 200-day line. It is below the clouds on the Ichimoku Kinko Chart.
This is a "red 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, a positive factor is the maintenance of the Bank of Japan's monetary easing policy.
Looking at the technical aspects, the U.S. market is in a medium-term no trend and a short-term down trend. The Japanese market is in a medium-term no trend and 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 127 to 130 yen.
This week, preliminary GDP figures for the January-March period in the U.S. and the euro area will likely be of interest. In addition, earnings announcements for the January-March period will follow, and the Bank of Japan's monetary policy will be released. Other economic data releases include the U.S. housing index, durable goods orders for March, the consumer confidence index for April, and China's manufacturing PMI for April.
Last week, the Nikkei 225 moved mostly within its expected range. The upside was about 290 yen below the assumed line and the downside was about 90 yen below the assumed line. The expected range for the Nikkei 225 this week is between the 25-day line (currently near 27390 yen) on the upside and Bollinger Band -2σ (currently near 26350 yen) on the downside.
Volatility has increased, indicating a high level of investor anxiety. Selling pressure is also increasing, and the Nikkei 225 is likely to continue its downward trend this week.
