[Fundamental viewpoint]
In the U.S. markets last week, stock indexes rose for the week as investor sentiment improved on the back of an easing of excessive caution about geopolitical risks in the Middle East and better-than-market-expected quarterly earnings results from major tech companies.
Weekly change NY Dow: +0.67%, NASDAQ: +4.23%, S&P 500: +2.67%.
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 4.50 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 20.8
and the Nikkei 225's P/E ratio of 16.8, 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 4.50 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 65.0, or if the Nikkei Index is around 149,370 yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 111,440
yen,
From a fundamental perspective, the Japanese market can be said to be about 111,440 yen less attractive than the U.S. market. Weakness in the Japanese market was magnified last week when .
[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 The weekly leg of the NYDow was positive last week. The daily is above the 200-day line and below the Ichimoku Chart's cloud. The daily price is above the 200-day line and within the Ichimoku Chart's clouds. 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 +9.1%, an improvement of 0.3 percentage points from three months ago. Profit growth was +12.5%, an improvement of +3.5 percentage points from three months ago.
③ Long-term interest rates in the U.S. rose, and although the interest rate differential between the U.S. and Japan remained unchanged at 3.78 from 3.78, the U.S. dollar moved toward a weaker yen, from the 154 yen level to the 158 yen level. The dollar index fell -0.02% 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 third week of April was oversold, the fourth week of April was likely oversold, and this week is expected to be overbought. Of the five points last week, ① was bullish. ① ② ③ and ⑤ are expected to have an impact.
[Technical viewpoint]
From a technical perspective, the Japanese market is overvalued by 0.8 point in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 300 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 4.4 points (about 1670 yen in terms of the Nikkei average) overvalued in the medium to long term.
The Japanese market is strong against the NY Dow and in line with the NASDAQ. The VIX, a measure of U.S. market volatility, declined to a weekly low of 15.0. The Nikkei VI declined to a weekly low of 20.8. The U.S. market is somewhat optimistic and the Japanese market is still pessimistic.
The Nikkei 225 is above the 9-day and below the 25-day lines. This is a "yellow light" for the short-term trend.
The Nikkei 225 is in the clouds of the Ichimoku Chart. The Nikkei 225's overall divergence from the 200-day moving average was +5.9% and its divergence from the 200-day moving average was +9.5%. Since two factor is positive, a "yellow signal" is lit in the medium-term trend.
In the U.S. market, the NYDow is above the
9-day line and below the 25-day line and above the 200-day line. It is below
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 in 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 down trend and a short-term no trend. The Japanese market is in a medium-term up trend, and the short-term is down trend.
Analyzing the foreign exchange market, the yen is at the 150-yen level for the first time since November 2023. This week, the yen is expected to be in the range of 158 to 160 yen.
This week, U.S. markets will be focused on the Fed's decision to raise interest rates, followed by the jobs report. Investors will also be watching the ISM manufacturing and services PMIs, JOLT jobs report, trade statistics, manufacturing orders, and the CB consumer confidence index. Earnings season will culminate with earnings announcements from major companies. Internationally, the Eurozone's April inflation and preliminary Q1 GDP will be released. In addition, China's manufacturing PMI will be released.
Last week, the Nikkei average moved above its assumed range. The upper price was about 190 yen above the assumed line and the lower price was about 540 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around 40150 yen) on the upside and the Bollinger Band -1σ (currently around 38050 yen) on the downside.
This week, we will need to watch the FOMC and employment report results closely for their impact on the expected timing of a rate cut this year, but geopolitical risks in the Middle East are calming down, and both the U.S. and Japanese markets are likely to be volatile but on the upside.
