Economy2 MIN READ
Metrobank US-Iran Risk Index: Oil and currency
The US-Iran war was one of the biggest drivers behind the Philippine Peso’s recent record low.
by Metrobank, Investment Counselor Department
Share this article:
Metrobank’s US-Iran Risk Index settled at 146.4 on April 28, 2.3% higher than the prior trading day.
Global oil markets faced downward pressure with news that the United Arab Emirates (UAE) would exit the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters.
While the move led to market players’ expectations of improved oil supply—as the UAE moves away from the OPEC’s production quotas, the Strait of Hormuz’s closure kept the commodity’s price on an upward path. As a result, Brent Crude closed at USD 111 per barrel on Tuesday, according to data compiled by Bloomberg.
Meanwhile, the peso closed at a record low against the US Dollar on Tuesday, Philippine time, with the dollar-peso exchange rate ending the trading day at 61.30. On top of safe-haven demand fortifying the dollar, peso weakness has persisted, as expensive oil pushes import prices higher and foreign investment inflows continue to decline.
Currently, there is still no news on when the US and Iran will resume negotiations. Market players will likely continue to price in higher risk levels for the time being, placing greater pressure on oil and the peso in the coming days.
Metrobank still sees elevated risk and volatility in the near-term, as the path toward a resolution to the conflict remains uncertain. Oil prices are poised to stay high, as global supply remains constricted. Consequently, domestic inflation is expected to quicken on rising local energy prices.
Moreover, the Bangko Sentral ng Pilipinas (BSP) raised its policy interest rate last week to stem rising inflation expectations. Metrobank forecasts at least one more rate hike by the BSP this year. Finally, Metrobank expects the dollar-peso exchange rate to stay elevated, as dollar demand weighs on a weak peso.
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?
What now?
Category
Local Fixed Income
Outlook
Bearish
Strategy
Stay defensive in the 2 to 5‑year sector as foreign exchange-driven volatility, upcoming bond supply, and potentially more BSP rate hikes may contribute to a steeper bond yield curve. Hold-to-maturity clients may consider extending duration to 7 years for yields that remain above the previous year’s highs.
Category
Local Equities
Outlook
Neutral
Strategy
Maintain a cautiously constructive outlook and lean toward banks, defensive names, and high-quality index stocks that could benefit from improved macroeconomic confidence and a possible relief rally.
Category
Global Fixed Income
Outlook
Bearish
Strategy
Position in liquid, high-quality papers in the 2 to 5-year space while waiting for clearer signs of risk-on sentiment. Yields are likely to remain rangebound for the week, as markets remain driven by headlines related to Middle East developments.
Category
Global Equities
Outlook
Neutral
Strategy
Maintain a defensive positioning, with a focus on high-dividend and resilient sectors, alongside selective interest in quality growth names amid ongoing volatility. Elevated geopolitical risks are contributing to renewed strength in oil prices through a higher risk premium in energy markets and may continue to limit sustained upside in global equities.
Category
USD/PHP
Outlook
Neutral
Strategy
USD/PHP remains in an upward trend, supported by oil-driven inflation risks and broad USD strength. Hold existing USD positions but avoid chasing near 61.30. Look to add on dips toward 60.85-61.00 if needed, while treating 61.70 as near-term resistance where gains may slow amid potential US Federal Reserve (Fed)-driven volatility.
Category
G10 Currencies / US Dollar
Outlook
Bearish
Strategy
G10 currencies remain bearish against the USD amid elevated geopolitical risk, relatively firm US yields, and reduced confidence in early Fed easing. Focus on defensive positions, favoring relative-value and selective long USD positions. Short-term rebounds in G10 currencies should be treated as corrective unless supported by a clear de-escalation in geopolitical tensions or material deterioration in US macroeconomic data.
Category
Gold
Outlook
Neutral
Strategy
Brent Crude prices supported above USD 100 are raising flags on global inflation yet again, driving gold’s near-term underperformance versus the US Dollar and Treasuries. Middle East headlines will continue to drive market volatility for now, though the long-term bullish view on gold remains intact.
(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.)
Read More Articles About: