[Present state recognition of fundamental]
In the U.S. market last week, stock indices fell sharply for the week on caution about an acceleration in Fed rate hikes and rising long-term interest rates.
Weekly volatility NY Dow: -4.00%, NASAQ: -5.07%, S&P 500: -4.65%.
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 4.08 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 16.4 and the Nikkei 225's expected PER of 12.4 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 4.08 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 25.2 or if the Nikkei 225 is about 55080 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 27930 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 27930 yen. Last week, the weakness of the Japanese market diminished.
[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 the clouds of the equilibrium chart. NASDAQ weekly trend was positive. The daily footstep is under the 200-day line 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 0.2 percentage points from three months ago. In addition, the profit growth rate was +4.3%, an improvement of 3.3 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 3.21 to 3.46, moving the dollar against the yen in the range of ¥140 to ¥145. The dollar index rosel +3.08% 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 The September 2 and September 3 weeks were likely oversold, and this week is expected to be oversold. Of the five points last week, ① and ⑤ were 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 14.7 points (about 3990 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 10.2 points in the medium to long term (about 2770 yen, which is calculated in the Nikkei 225).
The strength of the Japanese market relative to the U.S. market increased during the week. The VIX, a measure of U.S. market volatility, rose last week to 29.92, well above the 25 level that indicates investor anxiety.
The Nikkei 225 is below the 9-day line and the 25-day line. The short-term trend is "red".
The Nikkei 225 is under the Ichimoku Kinko Chart's cloud. The Nikkei 225 is now under the Ichimoku Kinko's Kumo (equilibrium) cloud, and the Nikkei 225's divergence from the 200-day moving average is now -0.9%, turning negative. The divergence from the 200-day moving average is -0.9%, turning negative. 3 factors are negative, indicating a "red light" in 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 below 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 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 downtrend and also in a short-term downtrend. The Japanese market is also in a medium-term downtrend and a short-term downtrend.
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 145-140 yen range.
This week will see meetings by the central banks of the Eurozone, Australia, and Canada, as well as several speeches by Fed officials. In addition, inflation and external trade statistics will be released in China, and GDP updates are scheduled for Australia, the Eurozone, Japan, and Canada. Investors will also be closely watching the situation in European energy markets, as the critical pipeline that supplies gas from Russia to Germany will not be restarted as scheduled..
In the U.S. this week, attention will be focused on the Fed Chairman's speech and the release of the PCE price index and personal income and spending indexes. In Europe, attention will be focused on preliminary inflation figures for the Eurozone, including Germany, Spain, France, and Italy, as well as several business sentiment indices, including the Ifo business climate index. Also of interest will be the manufacturing PMI figures for China and Japan.
Last week, the Nikkei 225 fell below its assumed range. The upper price was about 300 yen below the assumed line and the lower price was about 100 yen below the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band -1σ on the upside (currently around 27560 yen) and the Bollinger Band -3σ on the downside (currently around 26550 yen).
Last week the U.S. market fell and volatility rose for the week. Both Japan and the U.S. have entered the oversold zone, so this week will be a week for the Nikkei 225 to look for buying opportunities.
