Stock market outlook.
Expected range: upper limit of 40,300 yen - lower limit of 39,000 yen
In the prime market, although trading was active on the 7th due to the U.S. employment statistics, the market later became sluggish and fell below the 4 trillion yen level for four consecutive business days. The Nikkei Average remained firm, but buying was concentrated on stocks with significant index impacts such as Advantest <6857> and Fast Retailing <9983>, leading to a widening of NT ratios to the 14.6 times range. Excluding the volatility on August 5th, the NT ratio has expanded to levels not seen since early April, highlighting the weakness of TOPIX and the strength of some Nikkei Average impact stocks. In the foreign exchange market, it settled at the high level of dollar-yen in the 148 yen range, but there was a cautious approach to active buying across a wide range of stocks due to volatile movements in the Chinese market after the National Day and selling on the wait for a return to the 0.04 million yen range. Although the House of Representatives was dissolved, there was no significant focus on election-related stocks, and the excitement towards the voting on the 27th is not particularly high.
Since 2000, there have been 8 dissolutions of the House of Representatives. Based on the closing price of the Nikkei Average, the win-loss ratio from the dissolution date to the voting is 7 wins and 1 loss, with an average increase rate of close to 4%. Although a strong trend conscious of "buying elections" has not been seen yet, as the official announcements including the public statements from each political party are completed on the 15th, there is a possibility that the market will also enter election mode.
On the 11th, the U.S. stock market rebounded. The Dow Jones Average rose by 409.74 points to 42,863.86, the Nasdaq rose by 60.89 points to 18,342.94, and the S&P 500 rose by 34.98 points to 5,815.03 at the close of trading. With the onset of earnings announcements, U.S. stocks rose following strong results from JP Morgan and Wells Fargo. Next week, in addition to Citigroup and Alcoa, earnings announcements from NY Dow components such as Goldman Sachs and the Procter & Gamble Company are also on the horizon. The NY Dow, which is at an all-time high, may rise significantly due to the sharp rise in component stocks, and interest in earnings reports should remain high. Also, with Nvidia breaking above the upside resistance line from the all-time high in June, there are expectations for the Nasdaq to achieve a new all-time high.
Advantest's rise is noticeable, but if Tokyo Electron <8035> also sees buying, it will become the driving force for pushing up the Nikkei average. In the night session of the OSE, the Nikkei 225 futures closed at 39,760 yen, up 150 yen from the daytime closing price, influenced by the rise in US stocks. If the strong US stocks lead the Tokyo market, the Nikkei average could easily recover to the 40,000 yen range.
The schedule to watch next week:
Will the dollar-yen next week show steady movements? The Middle East tensions are creating a risk-off mood, with the yen, considered a safe haven currency, being preferred. However, due to views that the U.S. monetary easing may not progress as expected, the dollar is not easy to sell. Additionally, with expectations of Japan's inflation slowing down and pending dissolution and general elections, the Bank of Japan's additional interest rate hikes are expected to be delayed, leading to a somewhat weaker demand for yen based on geopolitical risks in the Middle East region.
On the other hand, it became clear in the Federal Open Market Committee (FOMC) summary of discussions that multiple policy members were cautious about a significant rate cut. The Federal Reserve Board's (FRB) pace of rate cuts is considered slower than expected, making the dollar prone to buying. The US September Consumer Price Index (CPI) released on October 10th showed slightly strong results, contributing to a moderation in the pace of rate cuts. Dollar buying is also likely to increase as there is anticipation of a soft landing for the US economy due to the recent improvement in US employment-related indicators.
Schedule to watch next week:
October 14th (Monday): The stock market is closed for a holiday, with announcements from the US New York Federal Reserve Bank on inflation expectations (September), China's trade balance (September), statements from a US Federal Reserve Board (FRB) director on economic outlook, bond markets closed, and the announcement of the Nobel Prize in Economics.
October 15th (Tuesday): Announcement of House of Representatives election, Industrial Production (August), Capacity Utilization Rate (August), US New York Federal Reserve Bank Manufacturing Business Index (October), China's 1-Year Medium-Term Lending Facility Rate (by the 25th), UK Unemployment Rate (September), with speeches by the President of the US San Francisco Federal Reserve Bank and more.
October 16th (Wednesday): Core Machinery Orders (August), Visiting Foreign Arrivals (September), J-SOFT Co., Ltd listing on the Tokyo Stock Exchange Standard, US Import Price Index (September), UK Core Consumer Price Index (September), UK Producer Price Output Index (September), NZ Consumer Price Index (July-September) and more.
October 17th (Thursday): Trade Balance (September), US Retail Sales (September), US Initial Jobless Claims (last week), US Industrial Production Index (September), European Central Bank (ECB) policy interest rate announcement, press conference by ECB President Lagarde, Eurozone CPI (September), European Union Summit (until the 18th) and more.
October 18th (Friday): Core Consumer Price Index (September), Intermestic listing on the Tokyo Stock Exchange Prime, US Housing Starts (September), China New Home Prices (September), China GDP (July-September), China Industrial Production (September), China Fixed Asset Investment (Urban Areas)(September), China Real Estate Investment (September), Eurozone Current Account Balance (August), UK Retail Sales Index (September) and more.
