[Present state recognition of fundamental]
In the U.S. markets last week, Fed Chairman Jerome Powell reiterated in his speech that the Fed would continue to raise interest rates, with the top priority being to control inflation. Stock indices fell during the week as speculation of a prolonged period of monetary tightening increased.
Weekly volatility NY Dow: -4.22%, NASAQ: -4.44%, S&P 500: -4.04%.
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 3.74 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 18.4 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 3.74 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 25.3, or if the Nikkei 225 is about 55750 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 27110 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 ¥26680. Weakness in the Japanese market has diminished somewhat.
[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 +3.5%) 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 above the clouds of the equilibrium chart. NASDAQ weekly trend was negative. The daily footstep is under the 200-day line and above 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 the quarterly financial results, the estimated ROE of the Nikkei225 index was 9.1%, an improvement of 0.1 percentage points from three months ago. In addition, the profit growth rate was +4.3%, an improvement of 4.1 percentage points from three months ago.
③ U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 2.78 to 2.83, causing the dollar to move against the yen in the range of ¥135 to ¥137. The dollar index rose +0.68% for the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2023 is expected to be +3.54% for Japan and +4.88% for the U.S., so the Japanese market is 1.34 percentage points inferior in this aspect.
⑤ It was likely oversold in the August 3 week and overbought in the August 4 week, and is expected to be oversold this week. Of the five points last week, 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 12.4 points (about 3550 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 8.2 points in the medium to long term (about 2350 yen, which is calculated in the Nikkei 225).
During the week, the strength of the Japanese market relative to the U.S. market extended. The VIX, a measure of the volatility of the U.S. market, was 25.56, above the 25 mark, a sign of investor anxiety.
The Nikkei 225 is below the 9-day line but above the 25-day line. The short-term trend is "yellow".
The Nikkei 225 is above the Ichimoku Kinko Chart. The overall divergence was +10.4%, narrowing the positive range compared to last week. The divergence from the 200-day moving average was +4.0%, narrowing the positive margin. 3 factors are positive, indicating a "green light" for the medium-term trend.
In the US market, the NYDow is below 9-day line and the 25-day and the 200-day line. It is above the clouds on the Ichimoku Kinko Chart. The NASDAQ is below the 9-day line and the 25-day and the 200-day line. It is above the clouds on the Ichimoku Kinko Chart.
This is a "red 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, 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 no trend and a short-term up trend. The Japanese market is in a medium-term up trend and a short-term up 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 136-139 yen range.
This week, investors will be most interested in the U.S. jobs report for August, as they speculate on the impact of the Fed's change in its rate hike plans. Other releases will include the German and Eurozone consumer price indexes and China's PMI. Also of interest will be German retail sales and the U.S. ISM manufacturing index for August.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 420 yen below the assumed line and the lower price was about 100 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around 28730 yen) on the upside and the Bollinger Band -1σ (currently around 27760 yen) on the downside.
Volatility has spiked due to a sharp decline in the U.S. markets over the weekend, and the Nikkei 225 is likely to trend lower this week.
