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

[Present state recognition of fundamental]

The US market last week was mixed. High-tech stocks were bought while selling became dominant due to concerns over deterioration of economic indicators. 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 Japanese and U.S. markets is the published OECD real GDP forecast for 2021 The Japanese market is overvalued by 0.22 points, considering the announced OECD real GDP forecast for 2021. The reason for the overvaluation is the difference between the P/E of the S&P500 at 25.5 and the expected P/E of 17.9 of the Nikkei 225 stocks for the current fiscal year, as well as the difference between Japanese and U.S. interest rates and GDP growth.

This means that if the difference in the GDP growth rate between Japan and the U.S. in 2021 is further decrease by 0.22% compared to the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the PER of the Nikkei 225 stocks for the current term is around 17.2 or if the Nikkei 225 is around 20880 yen, the Japanese market is overvalued by 830 yen in the medium to long term , which is roughly balanced.

[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 -0.5%) by OECD

⑤ Foreign investors over-buying

Looking at recent movements

①    Last week's NYDow weekly trend was negative. The daily footstep is under the 200-day line and above the clouds of the Ichimoku kinko table, while the weekly NASDAQ weekly trend was positive. The daily footstep is above the 200-day line and above the clouds of the Ichimoku kinko table. This week, all eyes will be on the housing index, July ISM Manufacturing Economy Index, July Employment Statistics. It will be interesting to see if NYDow can keep above the 25-day line.

②    As a result of the announcement of the quarterly financial results, the forecasted ROE of the Nikkei 225 stocks was 5.8%. 0.6 points worse than 3 months ago. Profit growth was -6.7%, an improvement of 18.1 percentage points compared to three months ago.

③    Although U.S. long-term interest rates fell and the interest rate gap between Japan and the U.S. narrowed from 0.59% to 0.52%, the exchange rate, yen was stronger in the 106s to 104s.

④    The OECD's real GDP growth forecasts for Japan and the U.S. for 2021 were released, and Japan's GDP growth rate is expected to be -.0.5%. The U.S. market is expected to be up 1.9%, which means that the Japanese market is 2.4 points worse off in this respect.  

⑤    The 4th week of July was a over buying. There was a high possibility that the 5th week of July was over selling, and this week we are forecasting to over selling.

last week, ③ was a bearish factor. It seems that ①,②,③,⑤④ will be affected this week.

[Technical viewpoint]

From a technical perspective on the Japanese market, the difference in the 200-day deviation rate from NASDAQ is 11.7 points (about 2660 yen when considering the Nikkei225 average) over the medium and long term. It is less undervalued than last week. On the other hand, the difference in the rate of deviation from the 200-day line with NYDow is 2.9 points higher (about 660 yen when considering the Nikkei 225) over the medium to long term.

The Nikkei 225 is in the cloud of the Ichimoku Kinko table. The overall deviation rate was -3.7%, which turned negative compared to last week. The 200-day moving average deviation rate turned negative at -1.1. Since the two factors are negative, the "yellow signal" is lit in the medium term trend.

The Nikkei 225 is below the 25th and 9th lines. The "red light" is illuminated for short-term trends.

In the US market, NY Dow is above the 200 and 25 day lines, but below the 9 day line. It is above the clouds in the Ichimoku Kinko table. Nasdaq is above the 200 and 25 day lines, and the 9 day line. It is above the clouds in the Ichimoku Kinko table.

In the short term, the "yellow light" is lit, and in the medium term, the "green light" 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 unlimited 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 upward trend in the medium term, and no trend in the short term. The Japanese market is no trend in the medium term, and downward trend in the short term.

Analyzing the foreign exchange market last week, the US long-term interest rates fell, the gap between the Japanese and US long-term interest rates narrowed, and the exchange rate moved in the direction of a stronger yen. This week we can expect the yen to be in the range of 106 to 104 yen.

From now on, we need to pay attention to technical indicators, US market trends, exchange rate movements, and foreign investor trends.

The US quarterly closing season continues this week, with about a quarter of S&P 500 companies reporting their second quarter results. In terms of economic data, we look at US employment statistics. With an increase of over 2 million in July, the unemployment rate could drop to 10.3%. Elsewhere, attention will be given to central bank policy conferences in the United Kingdom, India, Brazil, Australia and Thailand, as well as manufacturing and service PMIs around the world. Elsewhere, we also look at US and Chinese trade.

Last week's Nikkei average was below the expected range. The upper price was about 70 yen above the assumed line, and the lower price was about 480 yen below the assumed line. As for the expected range of this week's Nikkei average, it is assumed that the upper price is between Bollinger Bands-1σ (currently around 22190 yen) and the lower value is between Bollinger Bands-3σ (currently around 21610 yen).