06.09.2021
Suga high
Japanese equities have added to last week’s rally & are now at highs not seen since 1990. Hopes that Suga’s successor will deliver additional stimulus & a more efficient response to the pandemic are widely cited as the drivers of the move.
On Qi, both the Nikkei 225 & TOPIX are now 1.3 sigma (4.1%) rich to macro. Moreover, model confidence is high at 90% & 80% respectively. Political developments are important but so too are macro fundamentals.
There are subtle differences between the regimes but both emphasise the importance of domestic reflation. Rising Japanese inflation expectations & a steeper Yen yield curve feature prominently for both indices.
A new administration may well plan more stimulus but, on this snapshot, the market has discounted a fair degree of success already.
Back-testing the efficacy of a +1.4 sigma FVG as a sell signal since 2009 produces strong results. For the Nikkei, a 62.5% hit rate & an average return of +0.5%. The equivalent numbers for the TOPIX are 66.7% & +2.1%.
The bullish case for Japanese equities can point to other drivers – strong seasonality into year-end, underweight positioning. But, on Qi, further gains will increasingly need the macro factors to do the work. The relative value expression Nikkei 225 vs S&P500 has lagged &, at ‘only’ 0.5 sigma rich to model, may offer a better trade.
A new administration may well plan more stimulus but, on this snapshot, the market has discounted a fair degree of success already.
Back-testing the efficacy of a +1.4 sigma FVG as a sell signal since 2009 produces strong results. For the Nikkei, a 62.5% hit rate & an average return of +0.5%. The equivalent numbers for the TOPIX are 66.7% & +2.1%.
The bullish case for Japanese equities can point to other drivers – strong seasonality into year-end, underweight positioning. But, on Qi, further gains will increasingly need the macro factors to do the work. The relative value expression Nikkei 225 vs S&P500 has lagged &, at ‘only’ 0.5 sigma rich to model, may offer a better trade.
