[Fundamental viewpoint]
In the U.S. markets last week, good earnings from NVIDIA led tech stocks higher, but stock indexes were mixed for the week as the ruling and opposition parties took time to reach an agreement over the U.S. debt ceiling issue.
Weekly volatility NY Dow:-1.00% NASDAQ:+2.51% S&P 500:+0.32%.
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 4.01 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 18.6 and the Nikkei 225's expected PER of 14.2 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 4.01 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 33.0 if the Nikkei 225 is about 71820 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 40900 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 ¥40900. The weakness of the Japanese market was magnified last week.
[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 in the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive weekly trend. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can return above the 25-day line.
② As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei225 index was +9.0%, a deterioration of -0.1 percentage points from three months ago. Also, the profit growth rate was +1.6%, 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 3.28 to 3.39, moving the dollar against the yen in the range of ¥137 to ¥140. The dollar index rose +1.00% 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 May 3 week was overbought; the May 4 week was likely overbought and is expected to be overbought this week. Of the five points last week, ③ and 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 1.9 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 590 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 10.3 points (about 3180 yen when converted to the Nikkei average) overvalued in the medium to long term.
Weakness in the Japanese market relative to the NASDAQ extended during the week, while strength in the Japanese market relative to the NY Dow extended during the week. The VIX, a measure of U.S. market volatility, rose to 18.0 for the week. The Nikkei VI declined to 19.3 for the week. This suggests that both the U.S. and Japanese markets are somewhat 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 above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +25.2%, and its divergence from the 200-day moving average was +11.3%. 3 factors are positive, indicating a "green light" for the medium-term trend.
In the US market, the NYDow is below 9-day line and 25-day line but above 200-day line. It is in the clouds of the Ichimoku Kinko Chart. NASDAQ is above 9-day line and 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 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. This week, we expect the yen to be in the range of 139 to 142 yen.
In the U.S. this week, negotiations on the U.S. debt agreement are in their final stages, but last-minute negotiations are expected to continue until the June 5 deadline. On the data front, the employment report, JOLTS jobs, ISM manufacturing PMI, and CB consumer confidence will be in focus. In addition, inflation figures will be released for the Eurozone, Germany, France, Italy, Spain, and South Korea. Also of interest will be China's manufacturing PMI.
Last week, the Nikkei 225 remained within the assumed range. The upper price
was about 370 yen below the assumed line and the lower price was about 240 yen
above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +3σ (currently around 32260 yen) on the upside and Bollinger Band +1σ (currently around 30400 yen) on the downside.
In the U.S. markets, the VIX is low despite concerns about the debt ceiling issue. This week, the Nikkei 225 is likely to move in line with the Bollinger Band +2σ.
