[Fundamental viewpoint]
In the U.S. markets last week, stock indices were mixed for the week due to the deteriorating Chinese economy, the impact of downgrades by U.S. regional banks, and mixed corporate earnings results.
Weekly change NY Dow: -0.45% NASDAQ: +2.26% S&P 500: +1.37%.
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 4.93 points undervalued in the Japanese market
when the revised OECD nominal GDP forecast for 2024 is taken into account. The
undervaluation is due to the difference between the S&P 500's P/E ratio of
20.0 and the Nikkei 225's P/E ratio of 14.7, the difference between the U.S.
and Japanese interest rates, and the difference in GDP growth rates.
This means that if the difference in GDP growth between Japan and the U.S. in
2022 is 4.93 points larger than the OECD forecast (Japan is revised downward or
the U.S. is revised upward), or if the current year's forecast PER of the Nikkei
Index stocks is around 54.0, or if the Nikkei Index is around 115,810 yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 84,180
yen,
From a fundamental perspective, the Japanese market can be said to be about 84,180 yen less attractive than the U.S. market. Last week, the 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 within the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive weekly line. The daily price is above the 200-day line and within 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 Nikkei 225 indexes came in at +8.6%, a deterioration of 0.4 percentage points from three months ago. Profit growth was +2.8%, an improvement of +0.2 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 3.63 to 3.59, the U.S. dollar moved toward a weaker yen in the range of ¥144 to ¥146. The dollar index rose +0.73% for the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.
⑤ The third week of August was oversold; the fourth week of August was likely overbought, and this week is expected to be oversold. 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 2.9 point (about 920 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 6.1 points in the medium to long term (about 1930 yen, which is calculated into the Nikkei 225).
The strength of the Japanese market versus the NY Dow was extended during the week. The VIX, a measure of U.S. market volatility, declined to a weekly low of 15.7. The Nikkei VI fell to a weekly low of 18.9. Anxiety sentiment weakened in both 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 within the Ichimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is +4.2%. The divergence between the Nikkei 225 and the 200-day moving average was +7.9%. Since the two factors are positive, a "yellow signal" is lit for the medium-term trend.
In the U.S. market, the NYDow is below the
9-day and 25-day lines but above the 200-day line. It is within the Ichimoku
Chart cloud.
The NASDAQ is above the 9-day and below 25-day lines, but above the 200-day
line. It is within the Ichimoku Kinko's cloud.
This 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 down 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 145 to 147 yen.
In the U.S. this week, the August jobs report will probe the FOMC's new views on monetary policy in September. Also of interest will be the Consumer Confidence Index, JOLTS Job Openings, Personal Income and Personal Consumption Expenditures, and the ISM Manufacturing Index. Other important economic indicators to be released include China's PMI and Eurozone CPI.
Last week, the Nikkei 225 moved above its assumed range. The upper price was about 440 yen above the assumed line and the lower price was about 440 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the 25-day line (currently near 32300 yen) on the upside and Bollinger Band -2σ (currently near 31310 yen) on the downside.
This week will be influenced by the August U.S. employment data. Volatility in the Japanese market is declining, and the Nikkei 225 is likely to continue to be restrained by the 25-day line, although the volatility of the Nikkei 225 is decreasing.
