Outlook for the Nikkei average this week [02-October 2022]

 [Present state recognition of fundamental]

In the U.S. market last week, stock indexes fell sharply for the week on concerns that global monetary tightening would cool the economy and worsen corporate earnings.

Weekly change rate NY Dow: -2.92% NASAQ: -2.69% S&P500: -2.91%.

                                       

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 4.51 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 12.0 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 4.51 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 25.9 or if the Nikkei 225 is about 56260 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 30320 yen in the medium to long term.

 

Fundamentally, the Japanese market is 30,320 yen less attractive than the US market. Last week, the weakness in the Japanese market increased.

 

[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 9-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 +4.6%, an improvement of 3.9% 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 3.46 to 3.60, moving the dollar against the yen in the range of ¥143 to ¥144. The dollar index fell -0.75% 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 September 3 week and likely oversold in the September 4 week, and is expected to be oversold this 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 11.9 points (about 3090 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 8.1 points in the medium to long term (about 2100 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 to 31.6, above 30, indicating strong 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. and the overall divergence is -16.5%, widening from the previous week. The divergence from the 200-day moving average was -5.2%, widening the negative margin. 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 143-145 yen range.

 

This week in the U.S., attention will be focused on the release of the September jobs report. In addition, monetary policy in Australia and New Zealand will be announced. Important economic indicators include the ISM Manufacturing Index in the U.S. and the ADP National Employment Report ISM Non-Manufacturing Index. Other noteworthy events include the OPEC Plus meeting and the Nobel Prize announcement.

 

Last week, the Nikkei 225 remained within the assumed range. The upper price was about 540 yen below the assumed line and the lower price was about 120 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band -1σ on the upside (currently around 26840 yen) and the Bollinger Band -3σ on the downside (currently around 25330 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.