Outlook for the Nikkei average this week [03-June-2018]

[Present state recognition of fundamental]

In the US market last week, buying dominated, despite temporary lowering due to political turmoil in Italy and Spain and trade friction concerns but favorable employment statistics. In the medium to long term, there are fears of a slowdown in the global economy due to confusion of US politics, raise rate by FRB, the lack of creditworthiness of European banks and concerns about credit contraction, the economic slowdown of emerging economies such as China, and concern over the global economic slowdown due to trade war. We need continued attention to the geopolitical risk of the Middle East , Korean Peninsula and Ukraine.

The difference in the yield spread between the US and Japanese markets is 3.36 points less than in the Japanese market, taking into account the 2019 OECD's real GDP forecast announced. The reason for the bargain is due to the difference between S&P500 's PER of 17.2 and the Nikkei average adopted stock price PER 13.3 and Japan-US interest rate difference, GDP growth difference. This is because the difference in GDP growth between Japan and the US in 2019 is 3.4% more than the OECD forecast (Japan will downgrade or US will be revised upward) against the current Nikkei average price, or it can be interpreted that the Japanese-U.S. Market will be in equilibrium, because the expected PER of the Nikkei average hires will be around 24.0 (the results for the current term will be revised downwards or the Nikkei average will be around 40050 yen) . Because it is so, the Japanese market is cheap about 17880 yen.

[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 UP of expected profit increase rate for the current term more than before

③ Expansion of the interest rate differential between Japan and the US and further depreciation of the yen

④ Upward revision of Japan's 2019 GDP estimate (now + 0.96%) by OECD

⑤ Foreign investors over-buying

Looking at recent movements

① Last week's NYDow weekly foot was positive. The daily bar is above the 200 day line, and it is above the cloud of the ichimoku table. Nasdaq weekly foot was positive. NASDAQ bar is above the 200-day line and above the cloud of the ichimoku table. This week we will be paying attention to Housing related indicators, Quarterly financial results announcement , ISM Non Manufacturing Industry Situation Index in May, Japan-US Summit Meeting. we would like to pay attention to whether NYDow keep above the cloud of the ichimoku table.

② The expected profit increase for the Nikkei 225 hires will be +9.1% with the announcement of the 1st quarter financial results. It has deteriorated by 0.3 points compared with 3 months ago. In addition, the growth rate forecast for this term is -6.1%. It has deteriorated by 27.1 points compared with 3 months ago

③ Long-term interest rates in the US rose, the difference in interest rates between Japan and the US has shrunk from 2.90 to 2.86%, and the exchange was a move from 109 yen range to 108 yen range. This week is estimated to be the 110 yen level to the 108 yen level.

④ The OECD's real GDP growth rate in 2019 in Japan and the US is expected to be + 1.0% in Japan and + 2.4% in the US, so the Japanese market is worse by 1.1 points on this aspect.

⑤ 4th week of May is a over selling. there is a high possibility that the 5th week of May is a over selling, and this week we are forecasting to over selling.

last week ③ was a bearish factor. It seems that ①,③,⑤ will be affected this week.

[Technical viewpoint]

From the technical point of view of the Japanese market, the 200-day discrepancy rate with Nasdaq is 6.6 points in the medium to long term (about 1460 yen when calculated by the Nikkei average), which is less expensive.  The difference has expanded compared to last week.

The Nikkei average above the cloud of the ichimoku table. The total divergence rate was +1.2%, and which has shrunk positive range. The 200 day moving average line deviation rate was +1.7%, and which has shrunk positive range. Since 3 elements are positive, the "green light" is on for the medium term trend. The Nikkei average is under the 25 day moving average line and the 9 day moving average line,  "red light " is on for short-term trends.

In the US market NY Dow above the 200 day line and the 25 day line but under the 9 day line. It is in the cloud of ichimoku table. NASDAQ above the 200 day average line and the 25 day average line and the 9 day average line. It is above the cloud of the ichimoku table. In the short term "yellow light" is on and in the medium term "green light" is on.

[Outlook for this week]

Looking at the US market fundamentally, concerns such as the US economic slowdown, sluggish crude oil prices, financial market turmoil due to UK's withdrawal from the EU, global long-term interest rate trends declined, Situation of North Korea, falling high-yield bond market, etc. Concern is diminished. However, there are fears concerning the global economic slowdown due to the US interest rate hikes, uncertainty of US politics, the creditworthiness of the EU regional banks, Concerns over the economic slowdown of emerging economies such as China and the global economic slowdown due to trade war, geopolitical risks of the Middle East and Ukraine as risk factors It exists.

Real estate prices in China are flat in large cities, but the problems of nonperforming loans in China as a whole such as excessive facilities have not been resolved. If you hurry up the process, it will lead to a short-term market drop, and if you delay proceeding, there is concern that the economic recession will be prolonged.

It also implies that the latest LIBOR interest rate has continued to update the highs for the past five years, and that the global nonperforming debt continues to increase, and the possibility of financial unrest is revealed.

On the other hand, as favorable material, the possibility of moderate rate hike in the US, policy expectation of New President Trump, setting of 2% inflation target by the BOJ, introduction of negative interest rate and purchase of 80 trillion government bond · 6 trillion yen ETF, In addition to monetary easing measures, clarification of the duration of long-term interest rate manipulation and monetary relaxation. Negative interest rates and purchase of government bonds are maintained for policy interest rates by the ECB. However, the government bond purchase facility has been gradually reduced from April 2017.  EU is also headed towards financial normality.

Looking at the technical aspect, the US market is upward trend in the medium-term, and no trend in the short term. The Japanese market is upward trend in the medium-term, but downward trend in the short term.

When analyzing the exchange market last week, the long-term interest rate in the US declined, the long-term interest rate gap between the US and Japan has shurunk, the exchange rate was stronger yen movement in the week. From now on, we need to pay attention to technical indicators, US market trends, foreign exchange movements and foreign investor's trends.

Last week's Nikkei average fell below the expected range. The upper price was lower than the assumed line by about 250 yen, and the lower price was about 350 yen lower than the assumed line. This week's Nikkei average is expected to move between the upper price near the 25 day average line (currently around 22540 yen) and the lower price near  the Bollinger band -2σ  (currently around 22020 yen ).