Outlook for the Nikkei average this week [9-April 2023]

 [Fundamental viewpoint]

In the US market last week, crude oil prices surged as OPEC+ decided to cut production. On the other hand, due to the deterioration of economic indicators and concerns about an economic recession, while defensive stocks were bought, economic sensitive stocks were sold, and the stock index became mixed.

Weekly change rate NY Dow: +0.63% NASAQ: -1.10% 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 4.11 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 18.5 and the Nikkei 225's expected PER of 13.2 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 4.11 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 28.8 if the Nikkei 225 is about 60100 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 32580 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 ¥32580. 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    The weekly leg of the NYDow was positive last week. The daily is above the 200-day line and the equilibrium cloud. The NASDAQ has a negative weekly trend. The daily is above the 200-day line and the equilibrium cloud. This week, I would like to pay attention to whether the NY Dow can keep above the equilibrium cloud.

②    As a result of the announcement of quarterly financial results, the expected ROE value for Nikkei 225 stocks was +9.0%. -0.1 points worse than 3 months ago. In addition, the profit growth rate was +3.2%, which is -2.7 percentage points worse than three months ago.

③    Long-term interest rates in the United States declined, the interest rate differential between Japan and the United States narrowed from 3.17 to 2.95, and the dollar/yen exchange rate moved in the direction of yen appreciation within the range of 133 yen to 130 yen. The dollar index fell -0.49% 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 5 week was overbought; the April 1 week was likely oversold; this week is expected to be overbought. Of the five points last week, ③ was bearish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 5.3 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 1460 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 2.5 points (about 690 yen when converted to the Nikkei average) undervalued in the medium to long term.

 

Weakness in the Japanese market relative to the U.S. market extended during the week. The VIX, a measure of U.S. market volatility, fell to a weekly low of 18.4. The Nikkei VI rose to 17.3 for the week. The Nikkei VI rose to 17.3 for the week, suggesting optimism in the U.S. and Japanese markets.

 

The Nikkei 225 is below the 9-day and 25-day lines. This is a "red light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart. The divergence between the Nikkei 225 and the 200-day moving average is +0.5%.

 

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 the 25-day line 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 down 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 130-133 yen range.

 

This week, investors will seek to gain more insight into the health of the U.S. economy. In the U.S., inflation and retail sales will be in focus, as well as FOMC minutes, industrial production, producer prices, and Michigan consumer sentiment. Elsewhere in China, inflation and trade statistics will be released, and the Bank of Canada and the Bank of Korea will decide on their monetary policy policies. In addition, CPI figures will be released in India, Brazil, and Russia.

 

Last week, the Nikkei 225 fell below its assumed range. The upper price was about 320 yen below the assumed line and the lower price was about 310 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ on the upside (currently around 28190 yen) and the Bollinger Band -1σ on the downside (currently around 27290 yen).

 

In the U.S. market, the VIX is declining despite concerns of a recession. Japanese markets are expected to regain last week's declines.