[Fundamental viewpoint]
In the U.S. markets last week, stock indices fell sharply for the week as the FOMC meeting results led to widespread speculation that monetary tightening would be prolonged.
Weekly change NY Dow: -1.89% NASDAQ: -3.62% S&P 500: -2.93%.
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 4.60 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 19.9
and the Nikkei 225's P/E ratio of 15.7, 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 4.60 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 56.7, or if the Nikkei Index is around 116,780 yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 84,380
yen,
From a fundamental perspective, the Japanese market can be said to be about 84380 less attractive than the U.S. market. 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 negative line. The daily chart is above the 200-day line and below the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a negative weekly line. The daily price is above the 200-day line and below 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 +2.3%, an improvement of +0.9 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 3.63 to 3.67, moving the dollar against the yen in the range of ¥147 to ¥148. The dollar index rose +0.24% 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 second week of September was oversold; the third week of September was likely oversold and is expected to be oversold this week. Of the five points last week, ① and ⑤ were bearish. ①②③⑤ are expected to have an impact.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, the difference in 200-day divergence from the NASDAQ is 3.4 points (about 1100 yen in the Nikkei 225) higher in the medium to long term. On the other hand, the difference in the 200-day divergence from the NYDow is 8.5 points (about 2,750 yen in terms of the Nikkei 225) higher in the medium to long term.
Strength in the Japanese market versus the New York Dow narrowed during the week. The VIX, a measure of U.S. market volatility, rose to 17.2 for the week. The Nikkei VI rose to 17.8 for the week. Optimistic sentiment receded in both Japanese markets.
The Nikkei 225 is below the 9-day and the 25-day lines. This is a "red light" for the short-term trend.
The Nikkei 225 is below the Ichimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is -1.4%. The divergence between the Nikkei 225 and the 200-day moving average was +8.9%. Since the one factor 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 the 25-day lines and above the 200-day line. It is below the Ichimoku
Chart cloud.
The NASDAQ is below the 9-day line and the 25-day line and above the 200-day
line. It is below the Ichimoku Kinko's cloud.
This is a "red 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 down 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 147 to 148 yen.
This week, the U.S. market will focus on the PCE price index and personal income and spending data. Also of interest will be durable goods orders, the second quarter GDP growth confirmation, and new home sales. In Europe, September inflation rates for the Eurozone, Germany, and France will be released, as well as German Ifo business sentiment and retail sales. In Japan, industrial production, retail sales, and minutes from the Bank of Japan's Monetary Policy Meeting will be released.
Last week, the Nikkei 225 fell below its assumed range. The upside was about 860 yen below the assumed line and the downside was about 930 yen below the assumed line.
This week, the Nikkei 225 is expected to move between the 25-day line (currently around 34090 yen) on the upside and Bollinger Band -2σ (currently around 32960 yen) on the downside.
This week will be strongly influenced by US long-term interest rates. Volatility in the Japanese and U.S. markets is on the rise and selling pressure is increasing. The Japanese market also coincides with ex-rights, and the risk of a decline seems high.
