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Metrobank US-Iran Risk Index: Art of the deal
With talks between the US and Iran breaking down over the weekend, investors are still waiting for a deal between the two countries to be struck.
By Metrobank Research, Investment Counselor Department
Metrobank’s US-Iran Risk Index settled at 133.8 on April 13, 3.6% higher than its value of 129.2 on April 10.
Risk levels rose after the US and Iran failed to reach an agreement over the weekend due to Iran refusing to accept Washington’s terms for the deal, according to Al Jazeera. Soon afterward, US President Donald Trump announced a blockade of the Strait of Hormuz, a critical passageway for global shipments that the US has been working to reopen. The US Central Command clarified that this blockade would only affect ships entering and exiting Iranian ports, according to NBC News.
Financial market players priced in the lack of a deal and continued oil supply constraints, with Brent crude moving above USD 100 per barrel during early Monday trade. The commodity eventually closed below USD 100 following statements from Trump that Iran still wants to work out a deal, according to Al Jazeera.
The US dollar’s strength also slightly waned, as investors’ hopes for a deal to be struck soon led to reduced safe-haven flows to the currency. Moreover, the benchmark 10-year US Treasury yield edged lower as inflation expectations moderated.
Metrobank still sees high risk and volatility in financial markets as the conflict develops. Oil prices will still likely stay high as supply remains constricted. Moreover, domestic inflation is 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 in the 2 to 5‑year sector amid foreign exchange‑driven volatility and upcoming supply, adding when there is a better yield premium. Maintain selective exposure to 7 to 10‑year tenors for carry and relative stability, while positioning for range‑bound, headline‑driven trading. |
| 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 liquid, high-quality bonds in the 2 to 5-year space amid renewed geopolitical tensions. Yields may remain elevated for the week, as recent developments in the US-Iran conflict put pressure on oil prices and cause risk-off sentiment to persist. |
| Global Equities | Neutral | 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. |
| USD/PHP | Bullish | The failure of the Islamabad peace talks, and the immediate escalation of maritime tensions, have triggered a broad risk-off rally in the US dollar, unwinding optimism from last week's short-lived ceasefire. Brent crude oil surged over 7% after President Trump announced a US Navy blockade of the Strait of Hormuz. With the US Dollar Index climbing again and USD/PHP ending last week at a 59.970 close, markets are once again bracing for a protracted conflict and the potential for hawkish central bank pivots in response to current events. |
| G10 Currencies / US Dollar | Neutral | Optimism around the G10 currencies was short-lived as failure in the Islamabad peace talks sent majors lower against the US dollar. Year-to-date, the outperformer is the AUD, while growth and inflation concerns send the JPY to the bottom among major currency peers. The resumption of risk-off positioning from the conflict’s escalation and high energy prices will continue to favor the greenback until a clear resolution is attained. |
| Gold | Neutral | Gold failed to sustain its rally, instead gapping down to the USD 4,650 mark in early Monday trading. The failure to secure mutually agreeable terms between the US and Iran leads to expectations of sustained energy-driven inflation, favoring the safe haven US Treasuries and the dollar in the near term over non-interest-bearing commodities such as Gold. 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.)