Nikkei Weekly Outlook: Earnings Cloud Overhang?

What to watch: Earnings season peaks with over 1,700 companies reporting this week; Monday, 5/12: Economy Watchers Survey - March (Cabinet Office); Money supply data - April (Bank of Japan [BOJ]); Wednesday, 5/14: Corporate Goods Price Index - April [BOJ]; U.S. CPI - April; Thursday, 5/14: Machinery Orders - March (Cabinet Office); Mansion/Condominium sales - April (Real Estate Economic Institute Co.); Friday, 5/16: GDP - January to March quarter (Cabinet Office)

Ongoing: Earnings, earnings, earnings! And as always, external factors will impact domestic equities, most noticeably rising commodities (record oil) and a weaker dollar (stronger yen): ¥102.80 on Friday vs. ¥105.4 the prior Friday.

Markets: Restrengthening of the yen and a negative earnings surprise and worse-than-expected outlook by Toyota (JP: 7203) (TM: 101.31 0.00%) have dampened recent bullishness for equities. The DMA of TOPIX-1 advancers/decliners fell from a recent high of nearly 120 a week ago to the 112-level on Friday as 81% of stocks closed in the red — of the 236 advancers, 57 reached new highs compared to only 6 new lows.

In recent weeks we had seen strength particularly on Fridays and a sustained elevated level of the A/D line, but this slipped somewhat on back-to-back lower closes to end the week. A re-testing of 14,000 for the N225 looks tough, at least early in the week, although not impossible pending announcements of better-than-expected fiscal forecasts, machinery orders data on Thursday and the GDP reading on Friday.

Key earnings this week include:

• Monday, May 12: Dentsu (JP: 4324), Isuzu (JP: 7202), Nikon (JP: 7731), Citizen Holdings (JP: 7762), Marui Group (JP: 8252), Sumitomo Realty & Development (JP: 8830)
• Tuesday, May 13: Daiwa House (JP: 1925), Yakult (JP: 2267), Nissin Food (JP: 2897), Astellas Pharma (JP: 4503), Daiichi Sankyo (JP: 4568), Sumitomo Heavy (JP: 6302), Kubota (JP: 6326) (KUB: 35.78 0.00%), Sega Sammy (JP: 6460), Hitachi (JP: 6501) (HIT: 64.51 0.00%), Hirose Electric (JP: 6806), Nissan (JP: 7201) (NSANY: 18.24 0.00%), Tokyo Electron (JP: 8035), NTT (JP: 9432) (NTT: 20.87 0.00%), Yamada Denki (JP: 9831)
• Wednesday, May 14: INPEX (JP: 1605), Eisai (JP: 4523), Taisho Pharma (JP: 4535), SMC (JP: 6273), Daikin Industries (JP: 6367), Shinsei Bank (JP: 8303), TBS (JP: 9401)
• Thursday, May 15: Japan Petroleum Exploration (JP: 1662), Kajima (JP: 1812), JGC (JP: 1963), Fuji TV (JP: 4676), NEC (JP: 6701), Bank of Yokohama (JP: 8332), Aiful (JP: 8515), Leopalace21 (JP: 8848), Kintetsu (JP: 9041), Nippon TV (JP: 9404)
• Friday, May 16: Nippon Meat Packers (JP: 2282), Credit Saison (JP: 8253), Sony Financial (JP: 8729)

Weekly recap: The Nikkei 225 lost 2.8% last week ending at 13,655.34, peaking at 14,209 on Wednesday and hitting a weekly low of 13,640 on Friday. The recouping of 14,000 was shorter than the blooming of a cherry blossom. TOPIX 1st Section ended the week at 1,341.76. Although the TOPIX touched 1,400 intra-day Wednesday, the last time it closed above 1,400 was January 10th.

As of Friday’s close the N225 is trading at 15.5x trailing and 16.3x forward earnings, 1.57x book, 1.5% trailing yield and 1.6% forward yield. By comparison, the broader TOPIX (1st Section) is trading at 16.6x trailing earnings, 16.8x forward earnings, 1.46x book, 1.7% trailing yield and 1.7% forward yield.

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