Outlook for the Nikkei average this week [11-September- 2022]

[Present state recognition of fundamental]

In the U.S. market last week, stock indexes rose for the week as the Fed's anticipation of a major interest rate hike in September was factored in to some extent and the rise in long-term interest rates paused, halting the deterioration in investor sentiment for the time being.

Weekly volatility NY Dow: +2.66%, NASAQ: +4.14%, S&P 500: +3.65%.

                                       

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 3.84 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 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 3.84 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 25.4 or if the Nikkei 225 is about 55660 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 27450 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 27440 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 positive. The daily footstep is under the 200-day line and above the clouds of the equilibrium chart. NASDAQ weekly trend was positive. 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 +4.4%, an improvement of 3.5 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 2.96 to 3.07, moving the dollar against the yen in the range of ¥140 to ¥144. The dollar index fell -0.58% 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 oversold in the August 5 week and likely oversold in the September 1 week, and is expected to be oversold this week. Of the five points last week, 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 10.1 points (about 2850 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 6.9 points in the medium to long term (about 1950 yen, which is calculated in the Nikkei 225).

 

The strength of the Japanese market relative to the U.S. market narrowed during the week. The VIX, which indicates the volatility of the U.S. market, was at 25.47, above the 25 level that is indicative of investor anxiety, but declined slightly last week.

 

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 above the Ichimoku Kinko Chart. The overall divergence rate turned negative at +5.4% compared to last week. The divergence from the 200-day moving average was +2.8%, narrowing the positive margin. 3 factors are positive, indicating a "green light" for 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 above the clouds on the Ichimoku Kinko Chart. The NASDAQ is above the 9-day line but below the 25-day and the 200-day line. It is above the clouds on the Ichimoku Kinko Chart.

This is a "yellow 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.

 

From a technical standpoint, the U.S. market is in a medium-term holding pattern and a downtrend in the short term. The Japanese market is also in a medium-term holding pattern with 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 142-138 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..

 

This week, the U.S. is scheduled to release the inflation rate, which will provide further clues in determining whether the Fed will move toward tightening. Other key releases include retail sales and the University of Michigan consumer confidence index. Investors will also be keeping a close eye on U.K. inflation and monthly GDP figures. China is also scheduled to release industrial production, retail sales, and investment growth data for August.

Last week, the Nikkei average was almost in line with the expected range. The upper price was about 20 yen above the assumed line and the lower price was about 20 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around 28760 yen) on the upside and the Bollinger Band -1σ (currently around 27780 yen) on the downside.

 

U.S. markets rallied last week and volatility declined for the week. With the U.S. CPI expected to decline when it is released this week, the Nikkei 225 is expected to continue its rebound.