Outlook for the Nikkei average this week [10-December 2023]

[Fundamental viewpoint]

In the U.S. market last week, stock indices rose for the week as concerns about an economic downturn eased after the release of the jobs report, although there were still phases of selling to adjust holdings in order to assess the jobs report.

Weekly change NY Dow: +0.01% NASDAQ: +0.69% S&P 500: +0.21%.

                                       

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 4.99 points undervalued in the Japanese market when the revised OECD nominal GDP forecast for 2025 is taken into account. The undervaluation is due to the difference between the S&P 500's P/E ratio of 20.4 and the Nikkei 225's P/E ratio of 14.5, 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 4.99 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 52.1, or if the Nikkei Index is around 116,290 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 83,980 yen,

 

From a fundamental perspective, the Japanese market can be said to be about JPY83.980 less attractive than the U.S. market. Weakness in the Japanese market diminished 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 positive line. The daily chart is above 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 the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can keep 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 +8.8%, an improvement of 0.2 percentage points from three months ago. Profit growth was +9.1%, an improvement of +6.7 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 to 3.48 from 3.51, while the dollar moved toward a stronger yen in the range of 147-141 yen. The dollar index rose +0.77% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2025 is expected to be +3.4% for Japan and +3.9% for the U.S., so the Japanese market is 0.5 percentage points inferior in this aspect.

⑤    The fifth week of November was oversold, the first week of December was likely oversold, and this week is expected to be oversold. Of the five points last week, ③was bearish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 5.5 point in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 1780 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 2.8 points (about 900 yen in terms of the Nikkei average) undervalued in the medium to long term.

 

The Japanese market's overvaluation relative to the New York Dow weakened during the week. The VIX, a measure of U.S. market volatility, declined to a weekly low of 12.4. The Nikkei VI rose to 19.7 for the week. Market sentiment is optimistic in the U.S. market and pessimistic in the Japanese market.

 

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 above chimoku Kinko Chart's cloud, and the Nikkei 225's total divergence is +1.5%The divergence between the Nikkei 225 and the 200-day moving average was +3.8%. Since the three factor is positive, a "green signal" is lit for the medium-term trend.

 

In the U.S. market, the NYDow is above the 9-day line and the 25-day line and the 200-day line. It is above Ichimoku Chart cloud.
The NASDAQ is above the 9-day line and the 25-day line and the 200-day line. It is above the Ichimoku Kinko's cloud.
This 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 turning toward appreciation since November 2023. This week, we expect the yen to be in the 144-147 yen range.

 

This week, the U.S. markets will release a number of very important indicators, including the Fed's interest rate decision, inflation data, and retail sales. Internationally, monetary policy announcements from the European Central Bank and the Bank of England will be of interest. In addition, the TANKAN Large Enterprises Manufacturing Index will be released in Japan, and preliminary PMIs will be released in Australia, Japan, the Eurozone, and the United Kingdom. In China, retail sales, industrial production, housing price index, and unemployment rate will be in focus.

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 170 yen below the assumed line and the downside was about 320 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around 33030 yen) on the upside and Bollinger Band -2σ (currently around 32020 yen) on the downside.

 

This week will be influenced by the FOMC and the dollar/yen movement. The Nikkei 225 is likely to continue to be volatile.