[Present state recognition of fundamental]
In the U.S. market last week, stock indexes rebounded on the back of the emerging view that consumption, which supports the U.S. economy, is strong and the over-ambivalence about accelerating inflation has eased.
Weekly volatility NY Dow: +6.24%, NASAQ: +6.84%, S&P 500: +6.58%.
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 1.47 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 17.6 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 1.47 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 16.0, or if the Nikkei 225 is about 33060 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 6280 yen in the medium to long term.
From a fundamental perspective, the Japanese market can be said to be unattractive for 6280 yen.
Weekly gains in the U.S. market prevailed, while weakness in the Japanese market was magnified.
[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 positive. The daily footstep is under the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was positive. 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 keep above the 25-day line.
② As a result of the announcement of quarterly financial results, the forecasted ROE for the Nikkei 225 indexes came in at 9.0%, 0.2 points worse than three months ago. In addition, the profit growth rate was +0.20%, 29.3 percentage 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 2.55 to 2.52, moving the dollar against the yen in the range of ¥128 to ¥126. The dollar index fell -1.35% for the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2023 is expected to be +1.8% for Japan and +4.9% for the U.S., so the Japanese market is 3.1 percentage points inferior in this aspect.
⑤ The third of May was likely overbought, the fourth week of May was likely overbought, and this week is expected to be overbought. Last week, of the five points, ① was bullish and ③ 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 11.2 points (about 3000 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 overvalued by 0.1 points in the medium to long term (about 30 yen, which is calculated in the Nikkei 225).
During the week, the strength of the Japanese market relative to the U.S. market narrowed. Volatility in the U.S. market increased, with the VIX falling from last week to 25.72. It is trending lower, below 30, which is indicative of heightened investor anxiety at the highest levels.
The Nikkei 225 is above the 9-day and 25-day lines. The "green light" has been given for the short-term trend.
The Nikkei 225 is in the Ichimoku Kinko Chart's cloud. The overall divergence was -3.9%, a smaller positive figure compared to last week. The deviation from the 200-day moving average was -4.2%, 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 above 9-day and the 25-day but below the 200-day line. It is below the clouds on the Ichimoku Kinko Chart. The NASDAQ is above the 9-day and the 25-day but below the 200-day line and the 200-day line. It is below the clouds on the Ichimoku Kinko Chart.
This is a "green 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 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 down a medium-term down trend and a short-term down trend. The Japanese market is in a medium-term no trend and a short-term up trend.
Analysis of the foreign exchange market shows that in 2020, the yen was gently moving in the direction of appreciation, but in 2021, the yen continued to depreciate. However, the yen has been appreciating for the past three weeks. This week, the yen is expected to be in the range of 127 to 125 yen.
This week, most attention is likely to be focused on the release of the U.S. jobs report for May. Also of interest will likely be the PMIs for China and the United States. Other economic indicators to be released include the U.S. home price index, the ISM manufacturing index for May, and the ISM non-manufacturing index for May.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 430 yen below the assumed line and the lower price was about 250 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 27420 yen) on the upside and the 25-day line (currently around 26690 yen) on the downside.
Volatility is high but trending lower, and selling pressure on credit is also declining. The Nikkei 225 is expected to rise this week.
