Outlook for the Nikkei average this week [23-April 2023]

 [Fundamental viewpoint]

The US market continued to release positive economic data last week, weighed down by fears of a prolonged monetary tightening and worsening economic conditions, leading stock indices to fall for the week.

Weekly fluctuation rate NY Dow: -0.23% NASAQ: -0.42% S&P500: -0.10%.

                                       

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 4.10 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 13.7 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 4.10 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 31.2 if the Nikkei 225 is about 65120 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 36550 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 ¥36550. Last week, weakness in 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 negative 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 negative 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 expected ROE value for Nikkei 225 stocks was +8.9%. -0.1 points worse than 3 months ago. In addition, the profit growth rate was +3.1%, which is -3.7 percentage points worse than three months ago.

③    U.S. long-term interest rates rose, widening the interest rate differential between the U.S. and Japan from 3.07 to 3.11, and the U.S. dollar moved toward a weaker yen in the range of ¥133 to ¥135. The dollar index fell +0.14% 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 2nd week of April was overbought; the 3rd week of April was likely overbought, and this week is expected to be overbought. Of the five points last week, ③ was bullish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 1.3 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 370 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 0.4 points (about 110 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 16.8. The Nikkei VI fell to a weekly low of 16.1. 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 +10.3%. The Nikkei 225's divergence from the 200-day moving average was +4.0%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is below 9-day line but above 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is below 9-day line but above and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “yellow” 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 no 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, but has been appreciating since mid-March. This week, we expect the yen to be in the 135-132 yen range.

 

Earnings reports from Microsoft, Alphabet, Facebook, Amazon, Coca-Cola, Visa, Boeing, Mastercard, Exxon Mobil and others will be on the radar this week in the US. Economic indicators will also focus on Q1 GDP growth, personal income and spending, PCE price index, durable goods orders and new home sales. Elsewhere, GDP figures for France, the Eurozone and Germany will be released. In addition, inflation rates in France, Germany, and Australia, and Japan's monetary policy are also worth watching.

 

Last week's Nikkei average remained within the expected range. The upper price was about 380 yen below the expected line, and the lower price was about 100 yen above the expected line.

The expected range of the Nikkei average this week is that the upper value is the Bollinger band +2σ (currently around 28880 yen) and the lower value is expected to move between the 25th line (currently around 27910 yen).

 

In the US market, the VIX is declining despite recession fears. The Nikkei average is likely to move across the Bollinger band +1σ.