Outlook for the Nikkei average this week [29-October 2023]

 [Fundamental viewpoint]

In the U.S. market last week, stock indices fell sharply for the week due to heightened geopolitical risks in the Middle East.

Weekly change NY Dow: -2.14% NASDAQ: -2.62% S&P 500: -2.53%.

                                       

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 4.81 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 18.6 and the Nikkei 225's P/E ratio of 15.0, 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 4.81 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 53.5, or if the Nikkei Index is around 110,750 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 79,760 yen,

 

From a fundamental perspective, the Japanese market can be said to be about 79,760 yen less attractive than the U.S. market. Weakness in the Japanese market narrowed 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 below the 200-day line and 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 +8.5%, a deterioration of 0.4 percentage points from three months ago. Profit growth was +2.1%, an improvement of +0.4 percentage points from three months ago.

③    U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 4.08 to 3.96, moving the dollar against the yen in the range of ¥150 to ¥149. The dollar index rose +0.39% 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 October was oversold; the fourth week of October was likely oversold and is expected to be oversold this week. Of the five points last week, ① was bearish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 3.8 points in the medium to long term in terms of the 200-day divergence from the NASDAQ (about 1180 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 6.3 points (about 1950 yen in terms of the Nikkei 225) more expensive in the medium to long term.

 

The strength of the Japanese market versus the New York Dow was extended during the week. The VIX, a measure of U.S. market volatility, declined to a weekly low of 21.3. The Nikkei VI fell to a weekly low of 22.6. Anxiety in both the U.S. and Japanese markets increased.

 

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 chimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is -3.6%The divergence between the Nikkei 225 and the 200-day moving average was +2.2%. Since the one factor is positive, a "yellow signal" is lit for the medium-term trend.

 

In the U.S. market, the NYDow is belowthe 9-day line and the 25-day line and 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 the 200-day line. It is below the Ichimoku Kinko's cloud.
This is a "red light" in the short term and a "red 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 down 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 148 to 150 yen.

 

In the US market this week, attention will be focused on employment statistics, following the Fed's interest rate decision, ISM manufacturing and service industry PMI, JOLTs job opening ratio, and manufacturing industry orders. In addition, major companies such as Apple will report their third quarter financial results. Internationally, the interest rate decisions of the central banks of the UK and Japan are most important. The Eurozone's inflation rate and third quarter GDP growth rate will be the focus of attention. Elsewhere, China's manufacturing PMI will provide insight into the direction of the global economy..

 

Last week, the Nikkei 225 remained within the assumed range. The upper price was about 330 yen below the assumed line and the lower price was about 30 yen above the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around 31640 yen) on the upside and Bollinger Band -2σ (currently around 30430 yen) on the downside.

This week will be influenced by the situation in the Middle East, the movement of U.S. long-term interest rates, and the content of quarterly earnings results. Volatility remains high in both the U.S. and Japanese markets, and the Nikkei 225 is expected to be volatile.

Outlook for the Nikkei average this week [22-October 2023]

 [Fundamental viewpoint]

In the U.S. markets last week, geopolitical risks in the Middle East and rising long-term interest rates caused stock indexes to fall sharply for the week.

Weekly change NY Dow: -1.61% NASDAQ: -3.16% S&P 500: -2.39%.

                                       

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 5.21 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 19.5 and the Nikkei 225's P/E ratio of 14.9, 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 5.21 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 67.0, or if the Nikkei Index is around 140,210 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 108,950 yen,

 

From a fundamental perspective, the Japanese market can be said to be about 108,950 yen less attractive than the U.S. market. Weakness in 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 below the 200-day line and 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 +0.7 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 3.86 to 4.08, moving the yen against the dollar in the range of ¥148 to ¥149. The dollar index fell -0.48% 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 October was overbought; the third week of October was likely oversold, and this week is expected to be oversold. Of the five points last week, ① was bearish.  ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 2.2 points in the medium to long term in terms of the 200-day divergence from the NASDAQ (about 690 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 5.7 points (about 1780 yen in terms of the Nikkei 225) more expensive in the medium to long term.

 

The strength of the Japanese market versus the NY Dow was extended during the week. The VIX, a measure of U.S. market volatility, rose to 21.7 for the week. The Nikkei VI rose to 23.2 for the week. Anxiety sentiment increased in both the U.S. and 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 chimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is -2.3%The divergence between the Nikkei 225 and the 200-day moving average was +3.6%. Since the one factor is positive, a "yellow signal" is lit for the medium-term trend.

 

In the U.S. market, the NYDow is belowthe 9-day line and the 25-day line and 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 148 to 150 yen.

 

This week, the U.S. market will focus on important data such as the third quarter GDP growth rate and the PCE price index. This will be followed by the release of key indicators such as durable goods orders and PMI readings by S&P Global. Meanwhile, earnings announcements from major companies such as Alphabet, Microsoft, Meta, and Amazon will be in full swing. Internationally, the ECB's interest rate decision will be key. Preliminary service and manufacturing PMIs will be released in Australia, Japan, the Eurozone, and the UK..

 

Last week, the Nikkei 225 remained mostly within the assumed range. The upper price was about 70 yen above the assumed line and the lower price was about 500 yen above the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around 32060 yen) on the upside and Bollinger Band -2σ (currently around 30590 yen) on the downside.

This week will be influenced by developments in the Middle East and U.S. long-term interest rates. Volatility is on the rise in both the U.S. and Japanese markets, and the Nikkei 225 looks to be at high risk of a decline.

Outlook for the Nikkei average this week [15-October 2023]

[Fundamental viewpoint]

In the U.S. markets last week, stock indices were mixed for the week, with the released Consumer Price Index and the geopolitical risks in the Middle East causing a flurry of movement in long-term interest rates.

Weekly volatility NY Dow: +0.79% NASDAQ: -0.18% S&P 500: +0.45%.

                                       

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 4.76 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 19.5 and the Nikkei 225's P/E ratio of 15.5, 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 4.76 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 58.7, or if the Nikkei Index is around 122,710 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 90,400 yen,

 

From a fundamental perspective, the Japanese market can be said to be about 90,400 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 below the 200-day line and the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive 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 +2.4%, 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 4.01 to 3.86, the U.S. dollar moved toward a weaker yen in the range of 148 to 149 yen. The dollar index rose +0.54% 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 first week of October was overbought; the second week of October was likely overbought; 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]

From a technical perspective, the Japanese market is undervalued by 2.3 points in the medium to long term in terms of the 200-day divergence from the NASDAQ (about 740 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 8.0 points (about 2590 yen in terms of the Nikkei 225) more expensive in the medium to long term.

 

The strength of the Japanese market versus the NY Dow was extended during the week. The VIX, a measure of U.S. market volatility, rose to 19.3 for the week. The Nikkei VI rose to 21.0 for the week. Anxiety sentiment increased in both the U.S. and Japanese markets.

 

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

The Nikkei 225 is below chimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is +7.3%The divergence between the Nikkei 225 and the 200-day moving average was +7.5%. Since the tow factor are positive, a "yellow signal" is lit for the medium-term trend.

 

In the U.S. market, the NYDow is above the 9-day line and below the 25-day line and the 200-day line. It is below the Ichimoku Chart cloud.
The NASDAQ is above the 9-day line and below the 25-day line and above the 200-day line. It is below 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 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 147 to 149 yen.

 

This week, U.S. markets will be focused on the opening of earnings season for major companies. Investors will also focus on Fed speeches and data on retail sales, housing starts, existing home sales, and industrial production. Internationally, attention will be focused on inflation rates in the United Kingdom, Japan, and New Zealand. In China, the focus will be on third quarter GDP growth, retail sales, industrial production, fixed asset investment, unemployment rate, and housing price index. Finally, the U.K. will release its unemployment rate and retail sales, and Germany will release its ZEW business sentiment index.

 

Last week, the Nikkei 225 moved above its assumed range. The upside was about 270 yen above the assumed line and the downside was about 500 yen above the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently near 32270 yen) on the upside and Bollinger Band -2σ (currently near 30800 yen) on the downside.

 

This week will be influenced by developments in the Middle East, U.S. politics, and U.S. long-term interest rates. Volatility is on the rise in both the U.S. and Japanese markets, and the Nikkei 225 looks to be at high risk of a decline.

Outlook for the Nikkei average this week [8-October 2023]

 [Fundamental viewpoint]

In the U.S. markets last week, stock indices were mixed for the week, with the supply-demand dynamics in the labor market and long-term interest rates moving in a mixed manner.

Weekly volatility NY Dow: -0.30% NASDAQ: +1.60% S&P 500: +0.48%.

                                       

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 5.01 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 19.0 and the Nikkei 225's P/E ratio of 14.9, 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 5.01 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 56.6, or if the Nikkei Index is around 122,800 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 91,810 yen,

 

From a fundamental perspective, the Japanese market can be said to be about 91,810 less attractive than the U.S. market. The weakness in 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 below the 200-day line and the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive 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 0.5 percentage points from three months ago. Profit growth was +2.3%, an improvement of +0.1 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 3.82 to 4.01, moving the dollar against the yen in the range of ¥147 to ¥150. The dollar index fell -0.07% 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 fourth week of September was oversold; the first week of October was likely oversold, and this week is expected to be overbought. ① and ⑤ were bearish.  ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 2.6 points in the medium to long term in terms of the 200-day divergence from the NASDAQ (about 810 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 7.5 points (about 1,460 yen in terms of the Nikkei 225) more expensive in the medium to long term.

 

The strength of the Japanese market versus the NY Dow narrowed during the week. The VIX, a measure of U.S. market volatility, remained unchanged at 17.5 for the week. The Nikkei VI rose to 20.5 for the week. Pessimistic sentiment in the Japanese market increased.

 

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 -5.4%. The divergence between the Nikkei 225 and the 200-day moving average was +3.5%. Since the one factor are positive, a "yellow signal" is lit for the medium-term trend.

 

In the U.S. market, the NYDow is above the 9-day line and below the 25-day line and the 200-day line. It is below the Ichimoku Chart cloud.
The NASDAQ is above the 9-day line and below the 25-day line and above the 200-day line. It is below 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 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 149 yen.

 

In the U.S. markets this week, attention will be focused on the Consumer Price Index, FOMC meeting minutes, speeches by Fed officials, the Wholesale Price Index, and the Consumer Confidence Index. There will also be earnings announcements from major companies such as Citigroup, JP Morgan Chase, BlackRock, UnitedHealth Group, PepsiCo, and Delta Air Lines. Internationally, China's CPI inflation, trade balance, and PPI inflation will be in focus, as will Germany's industrial production..

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 220 yen below the assumed line and the downside was about 720 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently near 32400 yen) on the upside and Bollinger Band -2σ (currently near 30870 yen) on the downside.

 

This week will be influenced by the U.S. Consumer Price Index and long-term interest rates. Volatility in the Japanese market is on the rise, and although the ground is not good, we can expect a rebound in the Nikkei 225 once U.S. long-term interest rates settle down.

Outlook for the Nikkei average this week [1-October 2023]

 [Fundamental viewpoint]

Stock indices slumped on the week in the U.S. markets last week as oil and long-term interest rates rose and the risk of a partial shutdown of U.S. government agencies was a concern.

Weekly volatility NY Dow: -1.34% NASDAQ: +0.06% S&P 500: -0.74%.

                                       

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 4.69 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 19.4 and the Nikkei 225's P/E ratio of 15.5, 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 56.6, or if the Nikkei Index is around 116,390 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 84,540 yen,

 

From a fundamental perspective, the Japanese market can be said to be about 84,540 yen less attractive than the U.S. market. Weakness in the Japanese market was somewhat 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 below the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive 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 +8.5%, a deterioration of 0.4 percentage points from three months ago. Profit growth was +2.3%, an improvement of +0.2 percentage points from three months ago.

③    U.S. long-term interest rates rose, widening the interest rate differential between the U.S. and Japan from 3.71 to 3.82, and the dollar moved toward a weaker yen in the range of ¥148 to ¥149. The dollar index rose +0.56% 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 September was oversold; the fourth week of September was likely oversold, and this week is expected to be overbought. 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 1.6 points (about 510 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 7.5 points (about 2,390 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 17.5 for the week. The Nikkei VI rose to 18.4 for the week. Optimistic sentiment receded in both the US and 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 -1.9%. The divergence between the Nikkei 225 and the 200-day moving average was +6.6%. 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 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 148 to 150 yen.

 

This week's U.S. markets will be dominated by employment data and speeches by Fed officials. In addition, the JOLTS employment report, services and manufacturing PMIs, trade statistics, and manufacturing orders will be released. Investors will also be watching interest rate decisions in Australia and India. Elsewhere, manufacturing PMIs will be released for Canada, India, and Russia. Finally, the unemployment rates for Canada and the Eurozone, Japan's Bank of Japan Tankan, and German manufacturing orders will also be of interest.

 

Last week, the Nikkei 225 oscillated above and below its assumed range. The upside was about 130 yen above the assumed line and the downside was about 80 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around 32620 yen) on the upside and Bollinger Band -2σ (currently around 31700 yen) on the downside.

 

This week will be affected by the presence or absence of partial closure of U.S. government agencies. Volatility in the Japanese and U.S. markets is on the rise and selling pressure is increasing. If the issue of partial closure of U.S. government agencies is resolved, we can expect a rebound in the Nikkei 225 as the October market starts and the investment environment improves.