Outlook for the Nikkei average this week [23-June 2024]

[Fundamental viewpoint]

In the U.S. markets last week, consumer-related stocks, which had been sold off recently, and stocks that had been lagging, were bought, while AI-related stocks, which had been the driving force up to this point, were soft, and stock indices were mixed.

 

Weekly volatility NY Dow: +1.45%, NASDAQ: +0.00%, S&P 500: +0.61%.

                                                                                                 

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 4.49 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 16.2, 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 4.49 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 59.2 or if the Nikkei Index is around 141,080 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 102,480yen, 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 positive last week. The daily chart is above the 200-day line and below the clouds of the Ichimoku Chart. The NASDAQ's weekly leg is in the form of a crosshair. The daily 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 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 +0.6%, 11.0 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 3.29 to 3.30, moving the yen against the dollar in the range of 157 yen to 159 yen. The dollar index rose +0.30% 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 second week of June was oversold, the third week of June was likely oversold, and this week is expected to be oversold. Of the five points last week, ① and ③ were bullish.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 8.2 points over the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 3160 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is 2.5 points (about 960 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, rose to 13.2 for the week. The Nikkei VI was flat at 16.3 for the week. The U.S. market is optimistic and the Japanese market is somewhat optimistic.

 

The Nikkei 225 is below the 9-day and the 25-day lines. This is a "red light" for the short-term trend.

The Nikkei 225 is within the clouds of the Ichimoku Chart. The Nikkei 225's overall divergence was +6.6%. The divergence from the 200-day moving average was +7.8%. Since two factor is positive, a "yellow 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 above 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 "green llight" 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.

 

Analyzing the foreign exchange market, the yen is at the 150-yen level for the first time since November 2023. This week, the yen is expected to be in the range of 158 to 160yen.

 

This week, the U.S. market will focus on PCE prices, personal income and spending, and speeches by several Fed officials. Other notable releases include the finalized Q1 GDP growth rate, durable goods orders, the tentative home sales index, the S&P/Case-Shiller home price index, and the Conference Board consumer confidence index. Globally, Eurozone inflation, Japanese retail sales, unemployment, and industrial production will be in focus.

 

Last week, the Nikkei 225 fell below its assumed range. The upside was about 460 yen above the assumed line and the downside was about 210 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ on the upside (currently around 39250 yen) and the Bollinger Band -2σ on the downside (currently around 38180 yen).

 

This week will likely 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 likely to continue to be directionless.