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Metrobank US-Iran Risk Index: A new hope
The US and Iran have agreed to a temporary ceasefire, which may finally provide some relief to market players.
By Metrobank Research, Investment Counselor Department
Metrobank’s US-Iran Risk Index settled at 145.5 on April 7, 0.2% lower than its value on the day before.
The US and Iran have agreed to a two-week ceasefire, with US President Donald Trump suspending attacks in Iran if the Strait of Hormuz is reopened during the period, according to Al Jazeera.
Though the ceasefire was announced after US trading hours, market players already priced in hopes for the conflict’s pause during the session, with Brent crude closing marginally lower on Tuesday. Early Wednesday trade has already shown Brent crude fall below USD 100 per barrel, according to data compiled by Bloomberg, with market players pricing in greater relief for oil supply for the next two weeks.
Meanwhile, ceasefire hopes also seeped into global bond yields, with the benchmark 10-year US Treasury yield closing lower by nearly 4 basis points on Tuesday. Dollar strength persisted, though softening safe-haven flows led to the dollar index closing marginally lower on Tuesday.
As market players continue to digest news of the ceasefire, risk levels will likely go down in the coming days, though still elevated, as oil prices fall and near-term inflation expectations temper. Negotiations between the two countries will begin on Friday, according to Al Jazeera, which will be critical in determining the direction of the conflict and market sentiment going forward.
Even as safe passage through the Strait of Hormuz resumes for the next two weeks, Metrobank still sees oil prices staying elevated compared to pre-conflict levels, as the war’s impact on oil facilities will weigh on supply conditions. Moreover, domestic inflation is still expected to accelerate as local energy prices stay high, which will likely compel the Bangko Sentral ng Pilipinas (BSP) to raise their policy interest rate 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?
| 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 | Neutral | Despite the recent ceasefire, a knee‑jerk market reaction pushed gold prices up about 2.30% day-on-day to over USD 4,800. The move was supported by persistent inflationary pressure, elevated oil prices, and continued geopolitical and macroeconomic uncertainty. Gold’s resilience, even amid a higher‑for‑longer Fed outlook, has contributed to a steepening yield curve. Our target entry range remains at USD 3,800–4,200. Over the long term, the bullish case for gold remains intact as global central banks continue to diversify reserves away from the 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.)