[Present state recognition of fundamental]
In the US market last week, amid deep-rooted concerns that continued interest rate hikes by the Fed and ECB would further worsen the economy, there were some signs of a self-sustaining rebound, and the stock indices showed mixed movements during the week.
Weekly change rate NY Dow: +0.86% NASAQ: -1.94% S&P500: -0.20%.
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 4.81 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 17.4 and the Nikkei 225's expected PER of 12.2 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 4.81 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 29.4 or if the Nikkei 225 is about 63250 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 37020 yen in the medium to long term.
Fundamentally, the Japanese market is 37020 yen less attractive than the US market. Last week, weakness in the Japanese market diminished.
[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 negative. The daily footstep is under the 200-day line and the clouds of the equilibrium chart. This week, we will be watching to see if the NYDow can move above the 25-day average line.
② As a result of the announcement of quarterly financial results, the ROE forecast for Nikkei 225 stocks is 9.0%. It is 0.1 point worse than 3 months ago. In addition, the profit growth rate was +6.3%, an improvement of 2.2 percentage points compared to three months ago.
③ Long-term interest rates in the United States rose, and although the interest rate differential between Japan and the United States widened from 3.24 to 3.38, the dollar/yen exchange rate moved in the direction of yen appreciation within the range of 137 yen to 130 yen. The dollar index fell -0.49% 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 second week of December was net selling. It is likely that the 3rd week of December was a net sell, and a net sell is expected this week. out of the five points, ③ 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 7.3 points (about 1920 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 6.1 points (about 1600 yen when converted to the Nikkei 225) lower in the medium to long term.
The strength of the Japanese market relative to the US market weakened during the week. The VIX, a measure of US market volatility, fell to 20.9 in a week. Nikkei VI rose to 20.2 in a week. Both indices are above 20, the borderline between optimism and pessimism.
The Nikkei is below the 9th and 25th lines. A short-term trend has a "red light".
The Nikkei average is below the clouds in the Ichimoku Kinko Hyo. The overall deviation rate was -13.3%, and the deviation rate from the 200-day moving average line was -3.7%. The medium-term trend has a "red light" as the 3 factors are positive.
In the US market, the NYDow is above the 200-day line but below the 9-day and 25-day lines. It is above the clouds of the Ichimoku Kinko Hyo. NASDAQ is below the 9th, 25th, and 200th lines. It is below the clouds of the Ichimoku Kinko Hyo.
It is a “red 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.
Looking at the technical aspects, the U.S. market is in a medium-term no trend and a short-term down trend. The Japanese market is in a medium-term down trend and is in a short-term down 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 134-130 yen range.
This week marks the final week of 2022, but with few significant economic announcements, the focus shifts to what the stock market will do next year. Many investors are on vacation and hoping to bring some rest to the market. In the U.S., housing data and his PMI readings for several regions are headlined. Japan will also release retail sales, industrial production and unemployment rates, while South Korea, Spain and Russia will focus on inflation rates.
Last week's Nikkei average fell below the expected range. The upper price was about 180 yen below the expected line, and the lower price was about 380 yen below the expected line. The expected range of the Nikkei average this week is that the upper value is Bollinger band -1σ (currently around 27080 yen) and the lower value is expected to move between Bollinger band -3σ (currently around 25880 yen).
Last week US volatility rose for the week and stock indices were mixed. This week's Nikkei average is likely to move across the Bollinger band -2σ.
