[Present state recognition of fundamental]
In the U.S. markets last week, stock indices rose for the week as expectations of a slowdown in the pace of Fed rate hikes supported the market.
Weekly change NY Dow:+1.78% NASAQ:+0.72% S&P 500:+1.53%.
On the other hand, medium- to long-term
risks include concerns about a prolonged conflict in Ukraine, energy costs, concerns
about a slowdown in the global economy due to rising interest rates, and
concerns about the bursting of the real estate bubble and a slowdown in China.
This also raises concerns about the arrival of stagflation. In addition,
geopolitical risks in East Asia and the Middle East continue to require
attention.
The difference in the yield spread between the Japanese and U.S. markets is that the Japanese market is 4.47 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 17.8 and the Nikkei 225's expected PER of 13.0 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 4.47 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 30.9 or if the Nikkei 225 is about 67410 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 39130 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 39130 yen. Weakness in the Japanese market was magnified last week.
[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 NYDow weekly trend was positive. The daily footstep is above 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 but in the clouds of the equilibrium chart. This week, we will be watching to see if the NASDAQ can move above the Ichimoku Chart cloud.
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. The profit growth rate was +6.1%, an improvement of 2.5 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 3.59 to 3.43, moving the dollar against the yen in the range of ¥142 to ¥138. The dollar index fell -0.85% for the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.51% for Japan and +3.54% for the U.S., so the Japanese market is 1.03 percentage points worse in this aspect.
⑤ The November 3 week was oversold; the November 4 week was likely overbought, and this week is expected to be oversold. 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 the 200-day divergence rate from the NASDAQ is 10.7 points (about 3030 yen when calculated for the Nikkei 225) higher in the medium to long term. On the other hand, the difference in the 200-day divergence from the NYDow is 1.9 points (about 540 yen when converted to the Nikkei 225) lower in the medium to long term.
During the week, the strength of the Japanese market relative to the U.S. market decreased. The VIX, which indicates the volatility of the U.S. market, declined to 20.5, below the 25 level that indicates investor anxiety. Nikkei VI dropped to 17.5.
The Nikkei 225 is above the 9-day line and the 25-day line. The short-term trend is now showing a "green signal.
The Nikkei 225 is above the Ichimoku Kinko Chart. The overall divergence was +8.5%. The divergence from the 200-day moving average is +4.0%. 3 factors are positive, indicating a "green light" for the medium-term trend.
In the U.S. market, the NYDow is above the 9-day, 25-day, and 200-day lines. It is above the clouds on the equilibrium chart.NASDAQ is above the 9-day and 25-day lines but below the 200-day line. It is in the clouds of the equilibrium 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 the rise, and we continue to be wary of a resurgence of 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 is in a short-term up trend.
Analyzing the foreign exchange market, the yen has been trending lower since early 2021, but has turned stronger since November. This week, the yen is expected to be in the 140-137 yen range.
In the U.S. this week, the focus will be on employment data, speeches by Fed officials, ISM manufacturing PMI, CB consumer confidence index, and personal income and spending. Attention will also be focused on inflation releases from the Eurozone, Germany, France, Italy, and South Korea. In addition, manufacturing PMIs from China, India, South Korea, and Australia will be released.
Last week, the Nikkei 225 remained mostly within the assumed range. The upper price was about 60 yen above the assumed line and the lower price was about 330 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 28510 yen) on the upside and the 25-day line (currently around 27660 yen) on the downside.
Volatility in the U.S. declined during the week last week and stock indices rose. This week, the Nikkei 225 is likely to move between Bollinger Bands +1σ.
