Outlook for the Nikkei average this week [1-May- 2022]

 [Present state recognition of fundamental]

In the U.S. market last week, the stock indexes fell as investor sentiment deteriorated due to the economic slowdown in China and Amazon's poor earnings results.

Weekly volatility NY Dow: -2.47%, NASAQ: -3.93%, S&P 500: -3.27%.

                                       

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 1.98 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 18.6 and the Nikkei 225's expected PER of 12.9 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 1.98 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 17.4, or if the Nikkei 225 is about 36100 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 9250 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market can be said to be unattractive for 9250 yen.

The Japanese market was closed and there was no trading, improving the apparent weakness of 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　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 and 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 0.1 points from three months ago. The profit growth rate was +25.3%, 8.0 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 2.66 to 2.72, moving the yen against the dollar in the range of 126 to 130 yen. The dollar index rose +2.07% 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 third week of April was likely overbought, the fourth week of April was likely overbought, and this week is expected to be oversold. Last week, of the five points, ③ was bullish and ① 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 11.3 points (about 3030 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 1.4 points in the medium to long term (about 380 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 33.40, up from last week and above 30, indicating heightened investor anxiety at the highest levels.

 

The Nikkei 225 is under the 25-day and 9-day lines. The "red light" has been given for the short-term trend.

The Nikkei 225 is in the Ichimoku Kinko's cloud. The overall divergence was -6.5%, widening compared to last week. The deviation from the 200-day moving average was -4.4%, widening compared to last week. 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 below 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 "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 in 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 down 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 128 to 130 yen.

 

This week will likely be dominated by the Fed's monetary policy meeting and the jobs report this week. Corporate earnings will also be in focus, as Amazon's earnings results were not favorable and led to a sharp sell-off on Friday. Other interest rate decisions will be made by the Bank of England and the Reserve Bank of Australia. Economic indicators include the U.S. ISM manufacturing index for April and manufacturing orders for March.

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 370 yen below the assumed line and the downside was about 120 yen below the assumed line. This week, the Nikkei 225 is expected to move between the 25-day line (currently near 27240 yen) on the upside and Bollinger Band -2σ (currently near 26160 yen) on the downside.

 

Volatility has increased, indicating that investor anxiety is high at the highest levels. In addition, credit selling pressure is strong and the Nikkei 225 is likely to continue its downward trend this week.