[Present state recognition of fundamental]
In the U.S. market last week, stock indices rose sharply for the week as long-term interest rates paused, somewhat easing expectations of a rapid Fed rate hike and buying in anticipation of a near-term return.
Weekly volatility NY Dow: +5.39%, NASAQ: +7.49%, S&P 500: +6.45%.
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 3.45 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 17.0 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 3.45 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 23.1, or if the Nikkei 225 is about 47600 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 2100 yen in the medium to long term.
From a fundamental perspective, the Japanese market can be said to be less attractive than the U.S. market by ¥21,100. 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 return 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 +0.3%, 28.0 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 3.01 to 2.91, but the dollar moved against the yen in the range of ¥134 to ¥136. The dollar index fell -0.51% 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 June was likely oversold, the fourth week of June was overbought, and this week is expected to be overbought. Last week, of the five points, ① was bullish. 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 11.9 points (about 3150 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 3.4 points in the medium to long term (about 900 yen, which is calculated in the Nikkei 225).
During the week, the strength of the Japanese market relative to the U.S. market narrowed. The VIX, a measure of U.S. market volatility, is trending lower at 27.23, below 30, the highest level of heightened investor anxiety.
The Nikkei 225 is above the 9-day line but below the 25-day line. The short-term trend is "yellow".
The Nikkei 225 is under the Ichimoku Kinko Chart's cloud. The Nikkei 225 diverged from last week to -8.0%, turning negative. The divergence from the 200-day moving average was -5.0%, widening the negative divergence. 3 factors are negative, indicating a "red light" in the medium-term trend.
In the US market, the NYDow is above 9-day line but below the 25-day and 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 line but below the 200-day line. It is below the clouds on the Ichimoku Kinko Chart.
This is a "yellow 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 downtrend and a short-term no trend. The Japanese market is in a medium-term downtrend and a short-term no trend.
Analysis of the foreign exchange market shows that in 2020, the yen was moving in the direction of a gradual appreciation, but as we move into 2021, the yen continues to trend lower. This week, the yen is expected to be in the 134-136 yen range.
This week, most attention is likely to be focused on the May consumer price indexes for the United Kingdom and Canada. Also likely to be closely watched will be the manufacturing PMIs for the U.S. and the Eurozone. Other economic indicators to be released include U.S. existing home sales, new home sales, bank stress tests, Bank of Japan policy meeting minutes, and the People's Bank of China interest rate decision.
Last week, the Nikkei 225 moved above its assumed range. The upper price was about 260 yen above the assumed line and the lower price was about 470 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ on the upside (currently around 27690 yen) and the Bollinger Band -1σ on the downside (currently around 26260 yen).
Volatility, although high, is trending lower, and selling pressure on credit is also declining. The Nikkei 225 is expected to continue to rebound this week.
