[Fundamental viewpoint]
In the U.S. markets last week, stock indexes rose for the week on expectations that the Fed will slow the pace of interest rate hikes as inflation settles and Tesla's strong earnings led to buying of tech stocks.
Weekly change NY Dow: +1.81% NASAQ: +4.32% S&P 500: +2.47%.
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 4.28 points cheaper than the U.S. market, considering the announced OECD nominal GDP forecast for 2024. The reason for the undervaluation is the difference between the S&P 500's PER of 18.3and the Nikkei 225's expected PER of 12.9and 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 4.28percentage 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 28.7 if the Nikkei 225 is about 61090 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 33700 yen in the medium to long term.
Fundamentally, the Japanese market is 33700 yen less attractive than the US market. Last week, the weakness in the Japanese market increased.
[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 above the 200-day line and above the clouds of the equilibrium chart. This week, we will be watching to see if the NYDow can keep 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 8.9%. It is 0.2 point worse than 3 months ago. In addition, the profit growth rate was +5.4%, an improvement of 0.7 percentage points compared to three months ago.
③ Although U.S. long-term interest rates rose, the interest rate differential between the U.S. and Japan narrowed to 3.02 from 3.11, and the dollar moved slightly weaker against the yen in the range of ¥129 to ¥131. The dollar index fell -0.07% 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 January 3 week was overbought; the January 4 week was likely overbought and is expected to be overbought this week. Of the five points last week, ① and ⑤ were bullish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a
technical perspective, it is undervalued by 1.1 points (about 300 yen when
calculated to the Nikkei 225) in the medium to long term in terms of the
difference in the 200-day divergence rate from the NASDAQ. On the other hand,
the difference in the 200-day divergence from the NYDow is undervalued by 4.6
points in the medium to long term (about 1,260 yen when converted to the Nikkei
225).
The strength of the Japanese market relative to the U.S. market declined during the week. The VIX, a measure of U.S. market volatility, fell to a weekly low of 18.5. The Nikkei VI fell to a weekly low of 17.0. This suggests optimism in both the U.S. and Japanese markets.
The Nikkei is above the 9th and 25th lines. A short-term trend has a "green light".
The Nikkei is in the clouds in the Ichimoku Kinko Hyo. The overall deviation rate was +4.8%, and the deviation rate from the 200-day moving average line was +0.6%. The medium-term trend has a "yellow light" because 2 factors are positive.
In the US market, the NYDow is above the 9-day, 25-day line and 200-day lines. It is above the clouds of the Ichimoku Kinko Hyo. NASDAQ is above the 9-day, 25-day line and 200-day lines. It is above the clouds of the Ichimoku Kinko Hyo.
It is a “green light” in the short term and a “green 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 up trend and a short-term up trend. The Japanese market is in a medium-term no trend, and the short-term is 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 129-132 yen range.
This week will be dominated by monetary policy decisions by the central banks of the U.S., the U.K., and the eurozone, as well as the release of U.S. employment data. We also need to keep a close eye on inflation and GDP growth rates in Germany, France, Italy, and other major European countries. The latest PMI readings for the U.S., China, Canada, India, and Australia should also be closely watched..
Last week, the Nikkei average moved above its assumed range. The upper price was about 200 yen above the assumed line and the lower price was about 340 yen above the assumed line.
This week, the Nikkei 225 is expected to
move between the Bollinger Band +3σ on the upside (currently around 27900 yen)
and Bollinger Band +1σ on the downside (currently around 26930 yen)
This week, the Nikkei 225 is likely to continue to move between the +2σ Bollinger bands, although it will be greatly affected by overseas monetary policy, U.S. employment data, and quarterly earnings results of Japanese and U.S. companies.
