[Fundamental viewpoint]
In the U.S. market last week, stock indices sold off as long-term interest rates rose and PCE showed stronger inflationary pressures.
Weekly volatility NY Dow: -2.99% NASAQ: -3.33% S&P 500: -2.67%.
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 4.45 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 17.9and the Nikkei 225's expected PER of 13.1 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 4.45 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 31.5 if the Nikkei 225 is about 66020 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 38560 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 ¥38560. Last week, the weakness of 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 The weekly leg of the NYDow was negative last week. The daily is above the 200-day line and below the Ichimoku cloud. The daily is above the 200-day line and above the Ichimoku cloud. We will be watching to see if the NYDow can return above the 25-day average line.
② As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei225 index was 9.1, the same level as three months ago. In addition, the profit growth rate was +3.6, a deterioration of -2.5 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 3.31 to 3.44, causing the dollar/yen to move toward a weaker yen in the range of ¥133 to ¥136. The dollar index rose +1.33% 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 February 3 week was overbought; the February 4 week was likely oversold, and this week is expected to be oversold. Last week, of the five points, ③ was bullish and ① was bearish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a
technical perspective, it is overvalued by 0.7 points (about 190 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 0.7 points in the medium to long term (about 190 yen when
calculated for the Nikkei 225).
Weakness in the Japanese market relative to the U.S. market improved during the week. The VIX, a measure of U.S. market volatility, rose to 21.7 for the week. The Nikkei VI rose to 16.6 for the week. While the U.S. market is somewhat pessimistic, this suggests that the Japanese market is still optimistic.
The Nikkei is below the 9th but above 25th lines. A short-term trend has a "yellow light".
The Nikkei is above the clouds in the Ichimoku Kinko Hyo. The overall deviation rate was +1.4%, and the deviation rate from the 200-day moving average line was +0.7%. The medium-term trend has a "green light" because 3 factors are positive.
In the US market, the NYDow is below the 9-day line and 25-day line but above 200-day lines. It is below the clouds of the Ichimoku Kinko Chart. NASDAQ is below the 9-day line and 25-day line but above 200-day lines. It is above the clouds of the Ichimoku Kinko Chart.
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 up trend, and the short-term is no trend.
Analysis of the foreign exchange market shows that the yen has turned toward appreciation since November 2021, but has been weakening since mid-January.
This week, we expect the yen to be in the 135-137 yen range.
This week in the U.S., the release of the ISM Manufacturing Index Chicago Purchasing Managers Association Index, as well as statements from several Fed officials, will be closely watched. Other highlights include GDP growth in India, Australia, and Brazil, PMIs in China, and inflation in the Eurozone.
Last week, the Nikkei 225 fell below its assumed range. The upper price was about 160 yen below the assumed line and the lower price was about 40 yen below the assumed line.
This week, the Nikkei 225 is expected to
move between the Bollinger Band +2σ on the upside (currently around 27920 yen)
and the Bollinger Band -2σ on the downside (currently around 26920 yen).
This week, the focus will be on U.S. economic indicators, but U.S. long-term interest rates and the VIX are trending higher, and growth stocks are likely to remain vulnerable to selling pressure. However, the weak yen is likely to be a factor supporting lower prices.
