[Fundamental viewpoint]
In the U.S. market last week, the announcement by six central banks in Japan, the U.S., and Europe, including the Fed, that they would work together to strengthen the supply of dollars to the market, calmed financial concerns and boosted stock indices.
Weekly change NY Dow: +1.18% NASAQ: +1.66% S&P 500: +1.39%.
On the other hand, medium- to long-term
risks include concerns about the prolonged conflict in Ukraine, energy costs,
financial instability and global economic slowdown due to rising interest
rates, and the collapse of the real estate bubble and economic 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 4.29 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 17.8 and the Nikkei 225's expected PER of 12.8 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 4.29 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 28.4 if the Nikkei 225 is about 60700 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 33310 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 ¥33310. 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 positive last week. The daily is below the 200-day line and the equilibrium cloud. The NASDAQ has a positive weekly trend. The daily is above the 200-day line and the equilibrium 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 9.0, the same level as three months ago. In addition, the profit growth rate was +3.1, a deterioration of -2.7 percentage points from three months ago.
③ U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed to 3.15 from 3.14, moving the dollar against the yen in the range of ¥133 to ¥129. The dollar index rose -0.72% 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 March 3 week was oversold; the March 4 week was likely oversold, and this week is expected to be oversold. Last week, of the five points, ① was bullish and ③was bearish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 3.8 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 1040 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 0.6 points (about 160 yen when converted to the Nikkei average) overvalued 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 to 21.7 for the week. The Nikkei VI rose to 19.1 for the week. This suggests that the U.S. market is pessimistic.
The Nikkei is above the 9th but below 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 -1.0%, and the deviation rate from the 200-day moving average line was +0.1%. The medium-term trend has a "yellow light" because 2 factors are positive.
In the US market, the NYDow is above 9-day line but below 25-day line and 200-day line. It is below the clouds of the Ichimoku Kinko Chart. NASDAQ is above 9-day line and the 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.
It 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.
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 the short-term is no trend.
Analysis of the foreign exchange market shows that the yen has been weakening since January 2023, but has been appreciating since mid-March. This week, we expect the yen to be in the 130-128 yen range.
The turmoil that has gripped the banking industry this week will continue to draw investor attention. In the U.S., the Fed's Vice Chairman for Supervision will testify before the Senate and the House of Representatives. In addition, consumer income and spending, the PCE price index, and the firm report of fourth-quarter GDP growth will be released. Other inflation releases are scheduled in the Eurozone, Germany, France, and Spain.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 100 yen below the assumed line and the lower price was about 190 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around 28040 yen) on the upside and the Bollinger Band -1σ (currently around 27170 yen) on the downside.
In the U.S. markets, the VIX remains high as bank runs continue to fester. However, the FOMC meeting has passed, and the Japanese market is expected to calm down somewhat.
