Outlook for the Nikkei average this week [2-February-2020]

[Present state recognition of fundamental]

In the US market last week, the stock index fell sharply on the alarm over the spread of pneumonia caused by the new coronavirus. 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, European political turmoil and the creditworthiness of European banks and credit crunch concerns, 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 2.06 points less than in the Japanese market, taking into account the 2020 OECD's real GDP forecast announced. The reason for the bargain is due to the difference between S&P500 's PER of 18.8 and the Nikkei average adopted stock price PER 14.2 and Japan-US interest rate difference, GDP growth difference. This is because the difference in GDP growth between Japan and the US in 2020 is 2.0% 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 20.1 (the results for the current term will be revised downwards or the Nikkei average will be around 32820 yen) . In the medium to long term, the Japanese market is low valued at about 9610 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 2021 GDP estimate (now +0.74%) 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 it is above the cloud of the ichimoku table. This week we will be paying attention to Housing related indicators, Quarterly financial results announcement , January ISM Manufacturing Business Index, January Employment Statistics. I would like to pay attention to whether NYDow can return above the 25th day line.

②The forecast ROE for Nikkei 225 stocks for the current term is 8.1%, 0.7 points worse than the previous three months due to the announcement of financial results for the April-June period. In addition, the profit growth rate of the business forecast for the current term is - 6.8%,  6.6 points worse than the previous three months.

③The long-term interest rate in the United States has declined, and the interest rate differential between the United States and Japan has fallen from 1.71% to 1.59%, and the yen has moved upward from 109 yen to 108 yen.

④ The real GDP growth rate forecast for 2021 in Japan and the United States of OECD was announced, Japan is expected to be + 0.74%, and the United States is expected to be + 1.98%.

⑤ The 3rd week of January is a over selling. there is a high possibility that the 4th week of January is a over selling, and this week we are forecasting to over selling.

last week, ①,③,⑤ were bearish factor. It seems that ①,②,③,⑤ will be affected this week.

[Technical viewpoint]

From the technical viewpoint of the Japanese market, the 200-day divergence rate difference with NASDAQ is 5.6 points lower than NASDAQ in the medium to long term. (It is about 1300 yen when it is based on the Nikkei average)  Proportions expanded compared to last week.

The Nikkei average is above the cloud of the ichimoku table. The total deviation rate was +2.6%, and shrank to the positive width compared to last week. The 200-day moving average line deviation rate was +5.0%, and shrank to the positive width compared to last week. Since the 3 elements ware positive, the "green signal" is lit in the medium term trend. The Nikkei average is under the 25_day moving average line and the 9_day moving average line,  "red signal " is lit for short-term trends.

In the US market NY Dow is above the 200_day line but under the 25_day line and the 9_day line. It is above the cloud of ichimoku table. NASDAQ is above the 200_day average line but under the 25_day average line and the 9_day average line. It is above the cloud of the ichimoku table. In the short term "red signal" is lit and in the medium term " green signal" is lit.

[Outlook for this week]

Looking at the US market fundamentally, concerns such as interest rate hikes in the United States, sluggish growth in US corporate performance, financial market turmoil caused by credit slumps, North Korea issues, falling crude oil prices and falling high yield bond markets, global long-term interest rate decline trend are receding However, Spread of pneumonia infection by new coronavirus, US-China trade friction, US political uncertainty, lack of creditworthiness and political situation of EU banks, global economic slowdown concern with trade war, geopolitical risk of the Middle East and Ukraine Etc exist as a risk factor.

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.

Although the recent LIBOR interest rate has been on a downward trend, it has been rising for the past five years, implying that global bad debt continues to increase, and is aware of the possibility of a resurgence of financial uncertainty.

On the other hand, the following points can be pointed out as favorable materials. US interest rate cut expectations, policy expectation of President Trump, setting of 2% inflation target by the Bank of Japan, introduction of negative interest rate and purchase of ETF of 80 trillion yen · 6 trillion yen ETF Clarification of the duration of interest rate manipulation and monetary easing and ECB deepens negative interest rate and resumes quantitative easing.

Looking at the technical aspect, the US market is upward trend in the medium-term, and downward trend in the short term. The Japanese market is upward trend in the medium-term, and downward trend in the short term.

Analysis of the foreign exchange market last week showed that long-term interest rates in the United States have fallen, the long-term interest rate gap between the United States and Japan has narrowed, and the yen has appreciated during the week. This week is expected to be between 107 yen and 109 yen. From now on, it is necessary to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.

Last week, the Nikkei average was below the expected range. The upside was about 570 yen below the assumed line, and the downside was about 510 yen below the assumed line. For the Nikkei 225 this week, the upside is expected to be Bollinger Band-1σ (currently around 23,370 yen), and the downside is expected to be Bollinger Band-3σ (currently around 22,740 yen).