[Present state recognition of fundamental]
In the US market last week, the quarterly results of major companies were divided, and although some big techs fell, the stock index rose for the week.
Weekly change rate NY Dow: +5.72% NASAQ: +2.24% S&P500: +3.95%.
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 4.58 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 12.5 and 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 4.58 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 29.1 or if the Nikkei 225 is about 63150 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 36050 yen in the medium to long term.
From a fundamental perspective, it can be said that the Japanese market is less attractive than the U.S. market by ¥36050. Last week, the weakness of the Japanese market 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 positive. The daily footstep is under the 200-day line but above 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, This week, we will be watching to see if the NYDow can hold above the 25-day line.
② As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei 225 indexes came in at 9.1%, a 0.1 percentage point deterioration from three months ago. The profit growth rate was +4.8%, an improvement of 1.3 percentage points from three months ago.
③ U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 3.97 to 3.77, moving the dollar slightly higher against the yen in the range of 149 to 145 yen. The dollar index fell -1.08% 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 October 3 week was oversold; the October 4 week was likely overbought, and this week is expected to be oversold. 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 the 200-day divergence rate from the NASDAQ is 9.6 points (about 2,600 yen when converted to the Nikkei 225) over the medium to long term. On the other hand, the difference in the 200-day divergence from the NYDow is undervalued by 1.2 points over the medium to long term (about 330 yen when calculated for the Nikkei 225)..
During the week, the strength of the Japanese market relative to the U.S. market decreased. The VIX, a measure of U.S. market volatility, declined to 25.8, below the 30 mark, a sign of strong investor anxiety.
The Nikkei 225 is below the 9-day line but above the 25-day line. The short-term trend is "yellow light".
The Nikkei 225 is under the Ichimoku Kinko Chart's cloud. and the overall divergence is -0.9%, narrowing from the previous week. The divergence from the 200-day moving average was -0.3%, narrowing the negative margin. 3 factors are negative, indicating a "red light" in the medium-term trend.
In the US market, the NYDow is above 9-day line and the 25-day line and the 200-day line. It is above the clouds on the Ichimoku Kinko Chart. The NASDAQ is above 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 "green 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 global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, 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 uptrend. The Japanese market is in a medium-term downtrend and is in a short-term no trend.
Analysis of the foreign exchange market shows that in 2020, the yen was moving in the direction of gradual appreciation, but has been trending lower since 2021. This week, the yen is expected to be in the range of 148-145 yen.
In the U.S. this week, the focus will likely be on the ISM manufacturing index, the FOMC and Fed Chair Powell's press conference, the October jobs report, and earnings reports. Also to watch are central bank governors' meetings in the U.K. and Australia, as well as GDP growth and inflation in the Eurozone. Elsewhere, China is scheduled to release its manufacturing and services PMIs for October.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 180 yen below the assumed line and the lower price was about 90 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 27680 yen) on the upside and the 25-day line (currently around 26830 yen) on the downside.
U.S. stock indexes rose sharply over the weekend last week. Volatility declined for the week. This week, the Nikkei 225 is likely to move between the rising Bollinger Band +1σ .
