Outlook for the Nikkei average this week [11-December 2022]

 [Present state recognition of fundamental]

In the US market last week, with the release of the consumer price index and the FOMC results, there is a growing view that inflation will encourage the Fed to continue raising interest rates, and the stock index fell for the week.

Weekly fluctuation rate NY Dow: -2.77% NASAQ: -3.99% S&P500: -3.37%.

                                       

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 4.63 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 18.0 and the Nikkei 225's expected PER of 12.7 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 4.63 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 30.7 or if the Nikkei 225 is about 67480 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 39580 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 39580 yen. Weakness in the Japanese market narrowed somewhat 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 negative. 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 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 +6.6%, an improvement of 1.4 percentage points compared to three months ago.

③    Long-term interest rates in the United States rose, the interest rate differential between Japan and the United States widened from 3.25 to 3.34, and the dollar/yen exchange rate moved in the direction of yen depreciation within the range of 134 yen to 137 yen. The Dollar Index gained +0.41% 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 5 week was oversold; the December 1 week was likely oversold; this week is expected to be overbought. Of the five points last week, 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 5.1 points (about 1420 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 0.7 points (about 200 yen when converted to the Nikkei 225) lower in the medium to long term.

 

The strength of the Japanese market relative to the U.S. market decreased during the week. The VIX, a measure of U.S. market volatility, rose for the week to 22.8. It is above 20, which marks the borderline between optimistic and pessimistic. The Nikkei VI was 18.04, down for the week.

 

The Nikkei 225 is above the 9-day line but below 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 +3.7%. The divergence from the 200-day moving average is +2.5%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

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 9-day, 25-day and 200-day lines. It is in the clouds of the Ichimoku Kinko Hyo.

It is a "yellow light" in the short term, and a "yellow light" is lit 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 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 137-134 yen range.

 

This week in the US, all eyes will be on November's CPI, FOMC results and Fed Chairman Jerome Powell's press conference. Also to watch will be the UK monetary policy announcement, as well as the ECB's regular Governing Council meeting and Lagarde's press conference. In addition, PMIs for the US, UK, Eurozone and Australia will be released. In addition, in the United States, the New York Fed Business Index for December, retail sales for November, the Philadelphia Fed Business Index for December, and industrial production for November will give us an idea of the state of the economy.

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 220 yen below the assumed line and the downside was about 200 yen below the assumed line. This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ on the upside (currently around 28170 yen) and the Bollinger Band -1σ on the downside (currently around 27630 yen).

Volatility in the U.S. declined during the week last week and stock indices rose. The Nikkei 225 is likely to move between the 25-day lines this week.