Outlook for the Nikkei average this week [03-April- 2022]

 [Present state recognition of fundamental]

In the U.S. market last week, stock indices were mixed as oil prices and long-term interest rates paused after a sharp rise.

Weekly volatility NY Dow: -0.12%, NASAQ: +0.65%, S&P 500: +0.06%.

                                       

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 1.66 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 13.2 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 1.66 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 16.9, or if the Nikkei 225 is about 35440 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 7770 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market can be said to be unattractive for 7770 yen.

The Nikkei 225 fell for the week, extending the weakness in the Japanese market..

 

[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 negative. The daily footstep is above the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was positive. The daily footstep is above 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 0.1 points from three months ago. The profit growth rate was +29.5%, 5.4 points worse than three months ago.

③    U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 1.24 to 2.17, moving the yen against the dollar in the range of ¥125 to ¥121. The dollar index fell -0.24% 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 fourth week of March was oversold and the fifth week of March was likely oversold, and oversold is expected this week. Of the five points last week, ⑤ was 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 1.2 points (about 330 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 1.5 points in the medium to long term (about 410 yen, which is calculated in the Nikkei 225).

 

During the week, the weakness of the Japanese market relative to the U.S. market widened. Despite slightly higher volatility in the U.S. market, the VIX declined from last week to 19.63, improving investor sentiment.

 

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 in the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +2.6%, a smaller positive margin compared to last week. The negative divergence from the 200-day moving average was -2.1%, widening the negative range. Since the one factor is positive, a "yellow signal" is lit in the medium-term trend.

 

In the US market, the NYDow is above the 25-day lines but below 9-day and the 200-day line. It is above 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 above the clouds on the Ichimoku Kinko Chart.

This is a "yellow 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 no trend. 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 121 to 124 yen.

 

This week, the U.S. FOMC meeting minutes will likely be the focus of attention. In addition, the Australian policy rate will be released. Other economic indicators will include the U.S. manufacturing orders for February, the non-ISM manufacturing index for March, the trade balance for February, and retail sales in the Eurozone.

 

Last week, the Nikkei 225 fell below its expected range. The upside was about 310 yen below the assumed line and the downside was about 360 yen below the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ +400 yen (currently near 28260 yen) on the upside and the 25-day line (currently near 26620 yen) on the downside.

 

Volatility is trending lower, but selling pressure remains strong, so the Nikkei 225 is likely to weaken this week.