Metrobank’s US-Iran Risk Index settled at 107.7 on July 10, 0.4% lower than its value of 108.1 the day prior. Though market players have been pricing in significantly less risk compared to the war’s onset, continued tensions have kept risk levels elevated.
Despite news of a supposed peace deal being reached between the US and Iran last month, the two countries continued to trade military attacks last week, as the Strait of Hormuz—a critical passage for global oils shipments—continues to be disputed, according to Reuters. US President Donald Trump stoked the conflict by saying that the ceasefire was over during the North Atlantic Treaty Organization (NATO) summit last week, according to The Guardian.
However, oil price movements have been relatively muted despite the renewed hostilities. While Brent crude very quickly breached USD 100 per barrel when the war first erupted, the commodity has remained below USD 80 per barrel in the past few days. Brent crude closed at USD 76 per barrel on July 10, according to data compiled by Bloomberg.
Still, market players’ inflation concerns have not abated, resulting in a more hawkish outlook for the US Federal Reserve (Fed) this year. This led to an upward trend for US Treasury yields in the past few days. Hawkish expectations have also firmed the US dollar, keeping dollar-peso exchange rate elevated at the 61-level.
With both countries resuming military attacks, the outlook for a near-term resolution has once again gone cloudy. Even with market players pricing oil relatively lower compared to its peak earlier this year, upside risks will likely persist, especially as global oil supply remains constricted.
Domestically, Metrobank still sees inflation remaining elevated, which may place upward pressure on Philippine bond yields.
Moreover, Metrobank expects the Bangko Sentral ng Pilipinas remaining hawkish this year. Finally, Metrobank forecasts the dollar-peso exchange rate to stay elevated, as a hawkish Fed and corporate demand strengthens the dollar.
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.
