Outlook for the Nikkei average this week [10-April- 2022]

 [Present state recognition of fundamental]

Last week in the U.S. markets, there was widespread speculation that the Fed would tighten monetary policy aggressively. Long-term interest rates rose, high-tech stocks were sold, and stock indexes fell.

Weekly volatility NY Dow: -0.28%, NASAQ: -2.55%, S&P 500: -1.27%.

                                       

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 2.09 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 20.0 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 2.09 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 37010 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 10030 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market can be said to be unattractive for 10030 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 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 under the 200-day line but above the clouds of the equilibrium chart. NASDAQ weekly trend was negative. The daily footstep is under the 200-day line and in 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 +29.9%, 5.5 points worse than three months ago.

③    Long-term interest rates in the U.S. rose and the interest rate differential between the U.S. and Japan widened from 1.17 to 2.48, moving the dollar against the yen in the range of 122 to 124 yen. The dollar index rose +1.29% 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 fifth week of March was overbought, the first week of April was likely oversold, and this week is expected to be oversold. Of the five points last week, ① and ⑤were 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 3.7 points (about 1000 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 4.0 points in the medium to long term (about 1080 yen, which is calculated in the Nikkei 225).

 

During the week, the weakness of the Japanese market relative to the U.S. market widened. Volatility in the U.S. market increased, with the VIX rising from last week to 21.16, above 20, indicating heightened investor anxiety.

 

The Nikkei 225 is above the 25-day but 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 -5.0%, turning negative compared to last week. The negative divergence from the 200-day moving average was -4.3%, widening the 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 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 in 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 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 124 to 126 yen.

 

This week, the U.S. Consumer Price Index for March will likely be the focus of attention. In addition, monetary policy in the Eurozone, Canada, Turkey, and New Zealand will be announced. Other economic indicators to be released include the U.S. producer price index for March and retail sales for March, the New York Fed manufacturing index for April, and industrial production for March.

 

Last week, the Nikkei 225 moved mostly within its expected range. The upside was about 340 yen below the assumed line and the downside was about 10 yen below the assumed line. This week, the Nikkei 225 is expected to move between the 25-day line +500 yen on the upside (currently around 27280 yen) and the 25-day line -500 yen on the downside (currently around 26280 yen).

 

Volatility is on the rise and selling pressure remains strong, so the Nikkei 225 is likely to fall this week.