[Fundamental viewpoint]
In the U.S. markets last week, stock indexes rose for the week as the Consumer Price Index (CPI) for April grew less than market expectations and fears that the Fed would postpone an interest rate cut receded.
Weekly change NY Dow: +1.24%, NASDAQ: +2.11%, S&P 500: +1.54%.
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 4.44 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 21.6
and the Nikkei 225's P/E ratio of 16.4, 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 4.44 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 60.8, or if the Nikkei Index is around 143,360 yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 104,580
yen,
From a fundamental perspective, the Japanese market can be said to be about ¥104,580 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 The weekly leg of the NYDow was positive last week. The daily chart is above the 200-day line and the clouds of the Ichimoku Chart. The NASDAQ made a positive weekly move. The daily price is above the 200-day line and the Ichimoku Chart's clouds. 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 the financial results for the fiscal year ended March, the forecasted ROE for the Nikkei 225 index was +8.7%, a deterioration of 0.1 percentage points from three months ago. The profit growth rate was +2.1%, 8.5 percentage points worse than three months ago.
③ U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 3.60 to 3.48, moving the U.S. dollar slightly higher against the yen in the range of 153-156 yen. The dollar index fell -0.78% 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 second week of May was overbought, the third week of May was likely overbought, and overbought is expected this week. Last week, of the five points, ① was bullish while ② was bearish.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 1.7 points over the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 660 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 1.8 points (about 700 yen when converted to the Nikkei 225) over the medium to long term.
The Japanese market is strong against the NY Dow and weak against the NASDAQ. The VIX, a measure of U.S. market volatility, declined to a weekly low of 12.0. The Nikkei VI declined to a weekly low of 16.8. The U.S. market is optimistic and the Japanese market is slightly optimistic.
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 within the clouds of the Ichimoku Chart. The Nikkei 225's overall divergence was +12.4%. The divergence from the 200-day moving average was +10.9%. 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 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 no trend and a short-term up trend. The Japanese market is in a medium-term no trend, and the short-term is no 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 155 to 157 yen.
This week in the U.S. markets, Fed officials are scheduled to speak. In addition, economic indicators such as FOMC minutes, S&P manufacturing and services PMIs, durable goods orders, and new and existing home sales will be in focus. Earnings season is coming to a close, with earnings releases scheduled for NVIDIA, Target, and Intuit, among others. Globally, the focus will be on China's interest rate decision, inflation in the UK and Japan, and manufacturing and services PMIs in Japan, the Eurozone, and the UK.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 140 yen below the assumed line and the lower price was about 210 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 39620 yen) on the upside and the 25-day line (currently around 38370 yen) on the downside.
This week will be a week of examining whether U.S. economic indicators point to a recession and how that will affect the timing of interest rate cuts.
With earnings announcements, individual stocks in the Japanese market are polarizing into two strong and two weak, and it will continue to be difficult for the Nikkei 225 to make large gains.
