Outlook for the Nikkei average this week [20-November 2022]

 [Present state recognition of fundamental]

In the U.S. market last week, stocks fell for the week, as profit-taking slightly outweighed gains in stocks with good earnings.

Weekly change NY Dow: -0.01% NASAQ: -1.57% S&P 500: -0.69%.

                                       

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 4.55 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 12.9 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 4.55 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 29.6 or if the Nikkei 225 is about 65410 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 37510 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 37510 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 was in the crosshairs for the week. The daily footstep is above the 200-day line and the clouds of the equilibrium chart. NASDAQ weekly trend was negative. 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 +6.9%, an improvement of 2.4 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 3.58 to 3.59, moving the dollar against the yen in the range of ¥137 to ¥140. The dollar index rose +0.52% 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 November 2 week was overbought; the November 3 week was likely overbought and is expected to be overbought this week. Of the five points last week, ① was bearish.   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 10.5 points (about 2930 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 1.3 points (about 360 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 22.5, below the 25 level that indicates investor anxiety. Nikkei VI dropped to 18.2

 

The Nikkei 225 is below the 9-day line but above the 25-day line. The short-term trend is now showing a "yellow signal.

The Nikkei 225 is above the Ichimoku Kinko Chart. The overall divergence was +5.2%. The divergence from the 200-day moving average is +2.7%. 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 no 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.

 

This week in the U.S., we are closely watching the release of the FOMC minutes, the University of Michigan consumer confidence index, durable goods orders, and new home sales. In addition, November PMIs from the U.S., Japan, Germany, France, Australia, and other countries will be closely watched. In addition, central banks in China, South Korea, Turkey, and other countries are scheduled to make monetary policy decisions.

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 400 yen below the assumed line and the downside was about 100 yen below the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 28280 yen) on the upside and the 25-day line (currently around 27640 yen) on the downside.

 

Volatility in the U.S. rose during the week last week, while equity indices fell. This week, the Nikkei 225 is likely to move between Bollinger Bands +1σ.