Outlook for the Nikkei average this week [6-November 2022]

 [Present state recognition of fundamental]

In the U.S. markets last week, stock indexes fell for the week, largely due to Chairman Powell's post-FOMC press conference in which he suggested that the end point for policy rates may be higher than previously expected by the Fed.

Weekly Change NY Dow:-1.40% NASAQ:-5.65% S&P 500:-3.35%.

                                       

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 4.65 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 16.9 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 4.65 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 30.0 or if the Nikkei 225 is about 65200 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 38000 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 38,000 yen. The weakness of 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 NY Dow weekly trend was negative. The daily footstep is under the 200-day line but above the clouds of the equilibrium chart. NASDAQ weekly trend was negative. The daily footstep is under the 200-day line and 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 the quarterly financial results, the estimated ROE of the Nikkei225 index was 9.2%, an improvement of 0.1 percentage points from three months ago. The profit growth rate was +5.3%, an improvement of 2.0 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 3.77 to 3.92, but the dollar moved in the direction of yen appreciation in the range of 148 to 145 yen. The dollar index rose +0.11% 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 4 week was overbought; the November 1 week was likely oversold; this week is expected to be overbought. 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 14.6 points (about 3,970 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 0.5 points (about 140 yen when converted to the Nikkei 225) higher in the medium to long term.

 

During the week, the strength of the Japanese market relative to the U.S. market increased. The VIX, which indicates the volatility of the U.S. market, declined to 24.6, below the 25 level that indicates investor anxiety. The Nikkei VI was 21.6.

 

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. The overall divergence is -0.5%, narrowing from the previous week. The divergence from the 200-day moving average was +0.1%, changed to the positive margin. 2 factors are negative, indicating a "yellow light" in the medium-term trend.

 

In the US market, the NYDow is above 9-day line and the 25-day line but below the 200-day line. It is above 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 "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 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 no trend. The Japanese market is in a medium-term no trend 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 146-144 yen.

 

In the U.S. this week, attention will focus on inflation data followed by several speeches by Fed officials and the midterm elections. In Europe, the focus will be on third quarter GDP growth in the UK and retail sales in the Eurozone. In addition, China is scheduled to release its foreign trade and inflation data.

 

Last week, the Nikkei 225 remained within the assumed range. The upper price was about 140 yen below the assumed line and the lower price was about 50 yen above the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 27910 yen) on the upside and the 25-day line (currently around 26980 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.