[Fundamental viewpoint]
Stock indices were mixed in the U.S. market last week as economic indicators showed a continued slowdown in economic activity and some semiconductor stocks sold off, while buying prevailed as long-term interest rates declined.
Weekly change NY Dow: -0.08%, NASDAQ: +0.24%, S&P 500: -0.08%.
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 4.35 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 22.3
and the Nikkei 225's P/E ratio of 16.7, 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 4.359 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 61.3 or if the Nikkei Index is around 145,190 yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 105,610yen,
From a fundamental perspective, the Japanese market can be said to be about 105,610 yen less attractive than the U.S. market. 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 negative last week. The daily chart is above the 200-day line and within the clouds of the Ichimoku Chart. The NASDAQ's weekly leg was positive last week.. The daily chart is above the 200-day line and above the equilibrium cloud. This week, the focus will be on whether or not the NY Dow can hold 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 +9.0%, a deterioration of 0.1 percentage points from three months ago. The profit growth rate was +1.0%, 10.8 percentage points worse than three months ago.
③ U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 3.30 to 3.36, moving the yen against the dollar in the range of 158 yen to 161 yen. The dollar index rose +0.02% 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 third week of June was likely oversold, the fourth week of June was likely overbought, and this week is expected to be overbought. ③ was bullish.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 5.4 points over the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 2140 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 5.2 points (about 2060 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, fell to a weekly low of 12.4. The U.S. market is optimistic and the Japanese market is somewhat 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 above the clouds of the Ichimoku Chart. The Nikkei 225's overall divergence was +13.8%. The divergence from the 200-day moving average was +10.1%. Since two factor is positive, a "green 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 within the ichimoku
Chart cloud.
The NASDAQ is below the 9-day line and above the 25-day line and the 200-day
line. It is above the Ichimoku Kinko's cloud.
This is a "yellow light" in the short term and a "yellow 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 no trend. The Japanese market is in a medium-term no trend, and the short-term is up trend.
Analysis of the foreign exchange market shows that the yen is in the 160 yen range for the first time since April 1990. We expect the 162 to 158 range this week.
This week's U.S. markets will focus on the jobs report and the FOMC meeting minutes. Other important releases include the ISM Manufacturing and Services PMIs, JOLTs Job Openings, Manufacturing Orders, and Trade Statistics. In Europe, parliamentary elections in France and the U.K. will be closely watched. Globally, Eurozone inflation, German industrial production, Japan's Tankan, and China's manufacturing and services PMIs will be in focus.
Last week, the Nikkei 225 moved above its assumed range. The upper price was about 380 yen above the assumed line and the lower price was about 230 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +3σ (currently around 39930 yen) on the upside and Bollinger Band +1σ (currently around 39180 yen) on the downside..
This week is likely to be another week of examining whether the economic indicators to be released indicate a recession and how they will affect the timing of interest rate cuts, but the Nikkei 225 is expected to move in line with the +2σ Bollinger band.
