[Fundamental viewpoint]
In the U.S. markets last week, stock indices rose over the week as speculation of a Fed rate cut increased further.
Weekly change NY Dow: +1.27%, NASDAQ: +1.40%, S&P 500: +1.45%.
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 3.99 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 23.2and
the Nikkei 225's P/E ratio of 15.7, 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 3.99points 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 41.7or if the Nikkei Index is around 102,140yen, the
Nikkei Index will be at the same level as the current Nikkei Index price. 63,780yen,
From a fundamental perspective, the Japanese market can be said to be about 63,780 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 2025 GDP estimate (now +2.9%) 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 above 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 within the equilibrium cloud. This week, the focus will be on whether or not the NY Dow can keep above the 25-day line.
② As a result of the earnings announcements, the forecasted ROE for the Nikkei 225 index came in at +8.7%, a deterioration of 0.1 percentage points from three months ago. The profit growth rate was +2.1%, an improvement of 1.8 percentage points from three months ago.
③ U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 3.02 to 2.92, moving the yen against the dollar in the range of ¥148 to ¥144. The dollar index fell -1.68% for the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2025 is expected to be +2.9% for Japan and +3.9% for the U.S., so the Japanese market is 1.0 percentage points inferior in this aspect.
⑤ The second week of August was overbought, the third week of August was likely overbought, and this week is expected to be overbought. Last week, of the five points, ① was bullish and ③ was bearish.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 7.2 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 2,760 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is undervalued by 3.7 points in the medium to long term (about 1,420 yen when calculated for the Nikkei 225).
Japanese markets remain weak against the NY Dow and NASDAQ. The VIX, a measure of U.S. market volatility, rose to 15.9 for the week. The Nikkei VI declined to a weekly low of 25.4. The U.S. market is optimistic and the Japanese market is volatile.
The Nikkei 225 is above the 9-day and 25-day lines. This is a “green light” for the short-term trend.
The Nikkei 225 is under the Ichimoku Kinko Chart's cloud. The Nikkei 225's divergence ratio is +5.3%. The divergence from the 200-day moving average was +3.1% since these tow factors are positive, a “yellow light” has been given to the medium-term trend.
In the U.S. market, the NYDow is above the 9-day, and 25-day lines, and 200-day line. It is above the Ichimoku Chart cloud.
The NASDAQ is above the 9-day, and 25-day lines, and 200-day line. The NASDAQ is within the Ichimoku Chart cloud.
This is a “green signal” in the short term and a “yellow signal” in the medium term.
[Outlook for this week]
Looking at the U.S. market in terms of fundamentals, we are aware of concerns of a recession in the near term. Other risk factors include inflation and rising interest rates due to the Russia-Ukraine war, economic recession due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of China's real estate bubble and credit crunch, and expanding geopolitical risks in the Middle East.
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 up 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 has turned toward appreciation after peaking at the 162 yen level, which was reached in June 2024. This week, a range of 143 yen to 146 yen is expected.
The PCE price index will be the focus of attention in the U.S. markets this week. In addition, durable goods orders for July, the S&P CoreLogic Case-Shiller home price index for June, and the Conference Board consumer confidence index for August will be released. Globally, Eurozone inflation and German retail sales will be in focus.
Last week, the Nikkei 225 remained within the assumed range. The upper price was about 820 yen below our assumption and the lower price was about 1930 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 41180 yen) on the upside and the 25-day line (currently around 37300 yen) on the downside.
This week will be a week of deciphering the reality of the recession and the extent of the September interest rate cut from the economic indicators to be released. The Nikkei 225 is likely to search for the near-term peak of the rebound based on the U.S. market indices and currency movements.
