Role reversal, as Wall Street lags

A Reuters Open Interest newsletter

Role reversal, as Wall Street lags

By Jamie McGeever, Markets Columnist 

Oil slumped more than 10% on Tuesday, the biggest one-day fall since 2022, on hopes that conflict in the Middle East will de-escalate. Asian and European stocks rose sharply, but in a rare instance since the war broke out, Wall Street lagged and U.S. stocks posted mild losses.

In my column today I look at parallels between the stresses emerging in private credit markets today with U.S. subprime mortgages in 2007. Of course, that doesn't mean a global crash will follow, but investors should be aware of the potential risks under the hood.

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Timing is everything

Like many things in life, timing is everything in investing. In trading, it's even more crucial. In that light, the last 24 hours have been particularly challenging for oil traders, to put it mildly, with crude prices notching their biggest intraday swings on record.

With oil trading in a $36 intraday range, as it did on Monday, fortunes and careers can be made - or lost - in minutes. Leveraged positions will be particularly exposed, and it wouldn't be a total shock if it later emerges that some hedge funds suffered some big losses.  

* Fake news?

Underlining how sensitive markets are right now to headlines, oil extended heavy losses on Tuesday after U.S. energy secretary Chris Wright posted on X that the U.S. navy escorted a tanker through Strait of Hormuz, indicating that supply constraints may be easing. 

But the post was deleted minutes later, and oil rebounded around $10, a bounce boosted by a CBS report that U.S. intelligence detected signs Iran may be considering steps to deploy mines in the Strait of Hormuz. Headlines can always move markets. But these are extraordinary times. 

* Trading places

China's powerful export machine is racing up through the gears. Exports in the first two months of this year soared 22%, more than three times the pace of growth in December and the Reuters poll forecast. The January-February trade surplus was $213 billion. 

With tariffs crimping shipments to the U.S., trade with the rest of the world is booming. Last year's record $1.2 trillion trade surplus, which revived complaints about China's FX regime, could be broken this year. Meanwhile, figures from Berlin on Tuesday showed that German exports in January shrank at their fastest rate since May 2024. 

Every financial market crisis is different, but they do rhyme, and parallels are beginning to emerge between the tremors now rippling through private credit and those in U.S. subprime housing that led to the 2007-09 Global Financial Crisis.

This isn't to say a repeat of that historic crash is in the cards. But there is a growing risk that the mounting stress in private credit - scarce or nonexistent liquidity, opaque pricing, and spiking redemptions - could spill over into the public securities markets. 

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