Outlook for the Nikkei average this week [10-May-2020]

[Present state recognition of fundamental]

In the US market last week, the stock market index rose as economic activity restrictions began to be relaxed in many US states. On the other hand, in the medium to long term, the spread of new types of pneumonia, an inward political situation centered on the world's own country, a lack of creditworthiness and credit crunch of banks, a slowdown in China and other economies, a fear of a slowdown in the global economy due to trade wars, etc. The geopolitical risks of the Middle East, the Korean Peninsula and Ukraine need continued attention.

The difference in the yield spread between the US and Japanese markets is 0.92 points less than in the Japanese market, taking into account the 2021 OECD's real GDP forecast announced. The reason for the bargain is due to the difference between S&P500 's PER of 22.8 and the Nikkei average adopted stock price PER 15.6 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 0.9% 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 20.2 (the results for the current term will be revised downwards or the Nikkei average will be around 23950 yen) . In the medium to long term, the Japanese market is low valued at about 3770 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 under 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 , New unemployment insurance claims per week, New York Fed index for May. I would like to pay attention to whether NYDow can keep above the 25th day line.

② The forecasted profit growth rate for the Nikkei 225 stocks is ROE forecast 5.7%, 2.4 points worse than three months ago, due to the announcement of the latest quarterly financial results. Earnings forecast for this term is -29.3%, 24.6 points worse than three months ago.

③ Although long-term interest rates in the United States rose and the interest rate differential between Japan and the US widened from 0.65% to 0.69%, the yen remained strong from the 107 yen level to the 105 yen level.

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 5th week of April is a over selling. there is a high possibility that the 1st week of May is a over buying, and this week we are forecasting to over buying.

last week, ① was a bullish 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 14.9 points lower than NASDAQ in the medium to long term. (It is about 3010 yen when it is based on the Nikkei average)  Proportions expanded compared to last week.

The Nikkei is in the clouds in the Ichimoku Kinko table. The overall divergence rate was -5.5%, a narrower range than last week. The 200-day moving average divergence rate narrowed to -7.1%. As the tow factors are negative, the mid-term trend is lit with a "yellow signal". The Nikkei average is above the 25_day moving average line and the 9_day moving average line,  "green signal " is lit for short-term trends.

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

[Outlook for this week]

Looking at the US market fundamentally, concerns such as interest rate hikes in the United States, US-China trade friction, US political uncertainty, North Korea issues are receding However, Spread of pneumonia infection by new coronavirus, falling crude oil prices, worsening U.S. corporate earnings, falling high yield bond markets , global long-term interest rate decline trend, financial market turmoil caused by credit slumps, 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.

In addition, although the LIBOR interest rate has recently been declining, in March, the LIBOR interest rate has risen despite a decline in short-term interest rates, so there is a concern that financial instability may recur.

On the other hand, good news is the US zero interest rate policy, the Fed's direct financial support to companies including the purchase of junk bonds, economic measures of $ 2 trillion, and President Trump's policy expectations, monetary easing measures such as the Bank of Japan's 2% inflation target, the introduction of negative interest rates and the purchase of 80 trillion Japanese government bonds and 12 trillion yen in ETFs, as well as expectations for economic measures by the Japanese government that exceed the level of the Lehman Shock, large-scale economic measures by the EU countries, and the ECB's announcement of deepening negative interest rates and expanding quantitative easing.

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

Analyzing the foreign exchange market last week, the long-term interest rates in the US rose and the long-term interest rate differential between the US and Japan widened, but the yen remained strong.

This week, we expect prices in the 107 to 105 yen range. From now on, we need to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.

The Nikkei 225 last week remained within the expected range. The upper price fell about 340 yen below the assumed line, and the lower price exceeded the assumed line by about 220 yen. As for the expected range of this week's Nikkei average, the upside is the Bollinger band + 3σ (currently around 21,150 yen) and the movement between Bollinger band + 1σ (currently around 19990 yen) is expected.