[Fundamental viewpoint]
Stock indices rose for the week last week in the U.S. market as favorable economic indicators and corporate earnings announcements continued to dampen concerns about the economic outlook.
Weekly change NY Dow: +0.86% NASDAQ: +1.28% S&P 500: +0.87%.
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 3.94 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 18.9 and the Nikkei 225's expected PER of 13.8 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 3.94 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 30.4 if the Nikkei 225 is about 63380 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 34520 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 ¥345200. 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 Last week's NYDow's weekly chart was a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. NASDAQ's weekly chart became a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. This week, we will focus on whether or not the NY Dow can hold above the 25-day line.
② As a result of the announcement of quarterly financial results, the forecasted ROE for the Nikkei225 index is +9.0%, the same level as three months ago at +0.0 percentage points. The profit growth rate was +0.1%, down -3.5 percentage points from three months ago.
③ Although U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 3.11 to 3.04, the U.S. dollar moved toward a weaker yen in the range of ¥133 to ¥136. The dollar index fell -0.05% 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 April 3 week was overbought; the April 4 week was likely overbought and is expected to be overbought this week. Of the five points last week, ①,③,⑤ were bullish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 1.8 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 520 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 170 yen when converted to the Nikkei average) overvalued in the medium to long term.
Weakness in the Japanese market relative to the U.S. market narrowed during the week. The VIX, a measure of U.S. market volatility, fell to a weekly low of 15.8. The Nikkei VI fell to a weekly low of 15.2. Both the U.S. and Japanese markets suggest that they are optimistic.
The Nikkei 225 is above the 9-day and 25-day lines. This is a "green light" for the short-term trend.
The Nikkei 225 is now above the Ichimoku Kinko's Kumo, and the Nikkei 225's total divergence from the 200-day moving average is +11.7%. The Nikkei 225's divergence from the 200-day moving average was +4.8%. 3 factors are positive, indicating a "green light" for the medium-term trend.
In the US market, the NYDow is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is above 9-day line and and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.
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 up trend, and the short-term is up trend.
Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 135 to 138 yen.
This week, investors will be closely watching the U.S. jobs report as well as monetary policy decisions by the Fed and the ECB. In addition, earnings reports from Pfizer, AMD, Uber, Qualcomm, and Apple, ISM services and manufacturing PMIs, jobs reports, and U.S. trade data will also be in focus. In addition, the central banks of Australia and Brazil will set monetary policy, and inflation rates will be released for the Eurozone, Switzerland, and South Korea. In addition, manufacturing PMIs for China, India, and South Korea will be released.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 130 yen below the assumed line and the lower price was about 130 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +3σ (currently around 29460 yen) on the upside and Bollinger Band +1σ (currently around 28600 yen) on the downside.
In the U.S. market, the VIX is declining despite concerns of a recession. The Nikkei 225 is likely to move between Bollinger bands +2σ.
