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Metrobank US-Iran Risk Index: Deadline approaching
Market players hold their breath as US President Trump’s deadline for Iran to reopen the Strait of Hormuz draws near.
By Metrobank Research, Investment Counselor Department
Metrobank’s US-Iran Risk Index settled at 145.8 on April 6, 0.6% higher than its value last Friday, April 3.
Global oil prices were little changed on Monday, as market players continued to weigh the closure of the Strait of Hormuz, a critical transit point for global oil shipments, and US President Donald Trump’s threats on Iran to reopen it by Tuesday. Brent crude closed marginally higher at USD 109.77 per barrel, according to data compiled by Bloomberg.
Meanwhile, dollar strength was still supported by safe haven flows. Moreover, the benchmark 10-year US Treasury yield also closed slightly lower on Monday, US trading hours, with investors holding their breath as Trump’s deadline for the strait’s opening draws near.
All eyes will be on whether the US will still push through with its threats to intensify attacks on Iranian infrastructure should the Strait of Hormuz remain closed. Additionally, Trump himself has still not commented on whether the war was going to escalate or wind down during a press conference on Monday, according to NBC News. Uncertainty and risk levels in markets will still stay high as a result, as the strait’s fate remains in question.
Metrobank still expects upside oil pressure, as global oil supply remains constricted. We also expect the Bangko Sentral ng Pilipinas to raise their policy interest rate this year to combat rising inflation. Lastly, we see the dollar-peso remaining elevated in the near-future, as the dollar continues to strengthen on safe-haven demand.
Metrobank’s US-Iran Risk Index measures the amount of risk that the ongoing conflict presents to financial markets. It considers the general risk sentiment of investors and inflationary pressure brought by the conflict. A value of 100 denotes a normal level of risk based on market levels prior to the conflict’s escalation, while values greater than 100 imply increasing levels of risk
What now?
| Asset Class | Outlook | Strategy |
|---|---|---|
| Local Fixed Income | Bearish | Stay defensive on duration amid elevated foreign exchange volatility. Focus on liquid 2–5-year tenors and add only on pronounced yield spikes. Avoid extending duration, especially at the long end of the yield curve, until peso conditions and global risks show clear signs of stabilization. |
| Local Equities | Bearish | Expect bargain hunting of cheaper names in the near term. However, gains may remain capped amid oil-price volatility and developments in the Middle East. Buy on dips and take profit during rallies. |
| Global Fixed Income | Bearish | Stay in high-quality bonds in the 2- to 5-year sector as the defensive play despite easing geopolitical tensions. Yields may stay rangebound for the week, as global markets stay tuned in for further news. |
| Global Equities | Neutral | Maintain a defensive approach by prioritizing high-dividend sectors while taking advantage of volatility to accumulate select quality-growth names. |
| USD/PHP | Rangebound | Buy US dollars on dips or near the 59.85-60.15 support levels, as short-term fundamentals favor a mildly firmer USD after the US Federal Reserve (Fed) maintained its policy. Still, elevated energy prices and geopolitical risk will continue to fuel demand for USD. |
| G10 Currencies / US Dollar | Bearish | Major G10 currencies saw a brief rally heading into April, as US President Trump issued statements that military operations in Iran were nearing completion. However, conflicting statements from Iranian officials offer little hope for normalization of energy prices in the near term. Further, the US Dollar sees additional support following strong US labor data in March, reinforcing expectations of a less dovish Federal Reserve. |
| Gold | Slightly Bearish | Consistently elevated oil prices have driven hotter US inflation and delayed Fed rate cut expectations, contributing to a stronger US dollar and lower gold prices. The precious metal dropped by 12% throughout March and remains at USD 4,600 to USD 4,700 levels. The unpredictability of the situation, re-escalation of the conflict, higher oil prices, and a potentially more hawkish Fed may bring gold lower to our target entry levels of USD 3,800 to USD 4,200. Our long-term view is still for gold to outperform as global central banks diversify their reserve assets away from USD and US Treasuries. |
(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)