A: Good morning, and welcome to the Morning Update! Your daily twenty minute digest of markets, macro, regulation and fund industry news, built for the operating side of an investment firm. It's Wednesday, the thirtieth of September, twenty twenty six. I'm Emma.
B: And I'm George! Emma, it's a big one this morning. Wall Street fell for a second day as the thirty year Treasury yield climbed to its highest since two thousand and two, and the ten year is now sitting around five point three percent. American consumer confidence has dropped to its lowest in twelve years. Ouch!
A: That's striking, George! In London, the FTSE one hundred slipped about half a percent, gilts remain near multi decade highs with the budget four weeks away, and the Bank of England's plan for selling gilts has changed.
B: On the regulatory side, the FCA's application window for the new cryptoasset regime opens today, there are two big consultations on the future of the UK fund manager rulebook, and the Financial Ombudsman changes go live tomorrow. Lots to get through!
A: And in the fund world, a wave of asset manager mergers is reshaping the industry, and private credit liquidity is still the sector to watch. Then, as always, we finish with the three things a COO should do something about today. Right, let's go!
[PAUSE]
B: Let's start with the markets, Emma. Tuesday was another day where bonds set the tone. Did they ever!
A: They did, George! In the United States, the Dow Jones fell about zero point three percent, closing at around fifty one thousand, three hundred and fifty. The S and P five hundred slipped about zero point two percent to seven thousand, six hundred and seventy one, its second straight decline. The Nasdaq composite was almost unchanged, down less than a tenth of a percent, held up by another round of enthusiasm for chip stocks.
B: And underneath that calm surface, the bond market was doing the damage. What was going on there?
A: Quite a lot! The thirty year Treasury yield rose to about five point six two percent, the highest since two thousand and two, according to one of the market reports. Twenty four years! The ten year touched around five point three percent, the highest since two thousand and seven. When the government can borrow for thirty years at more than five and a half percent, every long dated asset has to be re priced against it.
B: And then there was the consumer, and that's a worrying one. The Conference Board's measure of consumer confidence dropped to eighty one point nine in September from a revised eighty eight point six in August. That's the lowest reading in about twelve years. Job openings fell by around a quarter of a million to just over seven million, a five month low.
A: So you have weaker demand signals and rising yields at the same time. That is an uncomfortable mix, Emma, because it's the sort of thing that hurts growth while the central bank is still worried about inflation.
B: Now, Asia this morning. It was mixed. Japan's Nikkei rose, with reports putting the gain at somewhere between one and almost two percent, while South Korea's Kospi was slightly lower and Hong Kong's Hang Seng was flat. China's official purchasing managers' surveys came in above fifty, which is the line between growth and contraction, so that's a modestly positive signal. A small bright spot!
A: Over to Europe, where Tuesday was soft. The FTSE one hundred and the French CAC forty each slipped roughly half a percent, the German DAX was flat, and the broad Stoxx six hundred ended about a tenth of a percent lower. Banks were down, and energy and food and beverage shares were the biggest losers, each falling more than one percent.
B: And in the gilt market, the thirty year yield eased slightly to about five point eight six percent. But that's still very close to its highest level since nineteen ninety eight! Nearly three decades.
A: On to commodities. Brent crude is trading around one hundred and five to one hundred and six dollars a barrel. Oil dipped on reports of releases from strategic petroleum reserves and some talk of easing tension between Washington and Tehran, but it has held above one hundred dollars. Still very elevated!
B: Gold is hovering around four thousand, one hundred and fifty dollars an ounce, near a two month low, although some reports this morning suggest it has been bouncing back.
A: In currencies, the dollar is strong, George. The euro against the dollar has fallen to a sixteen month low. Sterling touched a low of about one point three two, its weakest in a week. And the dollar against the yen is around one hundred and fifty six point four, helped lower by half year end flows.
B: One honest caveat before we move on. We can't give you this morning is a reliable reading on credit spreads this morning, because the sources conflict, so we'll leave that until we have a cleaner number.
[PAUSE]
B: Right, on to macro and central banks. Emma, the Bank of England has made a change to how it handles its bond holdings. Big news!
A: It is, George! And this is a genuine update to what we told you yesterday. Following the September meeting, where the Monetary Policy Committee held Bank Rate at three point seven five percent by six votes to three, reports say the Bank will pause its gilt sales for the next six months. It will stop selling twenty year and thirty year gilts entirely. And it is considering selling gilts to the government itself, rather than into the market.
B: Now, I should be careful here, because the precise details are still being reported, and the Bank's own documents are the authority. But the direction is clear. The Bank has noticed the pressure on long dated gilts, and it is trying to take some supply out of the market.
A: And the rate decision itself was a close call! Huw Pill, Catherine Mann and Megan Greene all voted for a quarter point rise, which would have taken Bank Rate to four percent. The governor, Andrew Bailey, said that higher global energy costs have had a limited effect on price and wage setting so far, but the longer the volatility persists, the more likely it is that the Bank will need to raise rates.
B: On growth, the picture is better than you might expect, Emma. UK output rose by zero point four percent in the second quarter, slightly stronger than forecast, and July also grew by zero point four percent. So this is not a stagnating economy. That gives the Bank room to hike, and markets, as we said yesterday, see a high chance of that at the meeting on the fifth of November.
A: Which sits alongside the budget on the twenty eighth of October. Higher gilt yields raise the government's borrowing costs and squeeze the Chancellor's room for manoeuvre. So expect the four weeks ahead to be full of speculation on tax and spending.
B: Over the Atlantic now. The Federal Reserve is chaired by Kevin Warsh, who said at Jackson Hole last month that reining in prices remains the central bank's primary focus, and that the Fed will have more work to do if inflation doesn't fade. Some of the market commentary this week points to further rate rises being on the table.
A: Which makes today's inflation data really important! The Personal Consumption Expenditures report, the Fed's favourite inflation measure, is due for August. Forecasts I've seen vary, so rather than quote a number we can't pin down, I'd simply say: a hotter reading would push yields up again, and a softer one would give bonds a bit of breathing room.
B: On Friday, the eurozone flash inflation estimate for September lands, followed a few hours later by American payrolls. Eurostat had August inflation above three percent, driven by energy, so the European Central Bank is watching that number closely too.
A: And the ECB, remember, raised its deposit rate to two point five percent earlier this month, with Christine Lagarde describing a measured approach.
B: And the geopolitics behind all of this? Still the Strait of Hormuz. Iranian and American officials reportedly met mediators separately on Monday, pushing for a ceasefire. But Iranian officials have privately said they're pessimistic about a deal before the American midterm elections in November, after President Trump rejected a proposal to reopen the waterway within seven days.
B: And there's a small positive on the supply side. Oil flows have resumed through Saudi Arabia's East West pipeline, which offers a bypass for some crude. It helps, but it doesn't replace the strait.
A: So, George, for a COO, the practical point is that this is a regime where energy, rates and currencies can all move together. Treasury, risk and your valuation teams should be ready for volatile days, not only volatile weeks. Right, that's the macro.
[PAUSE]
A: Right, let's get into regulation, and we start with something that goes live this morning! From seven o'clock today, firms can apply to the FCA for authorisation, or to vary their existing permissions, under the new cryptoasset regime.
B: The window runs from today, the thirtieth of September, to the twenty eighth of February twenty twenty seven. The regime itself takes effect on the twenty fifth of October twenty twenty seven, and the FCA published its final rules on the thirtieth of June.
A: Why does that matter if you're a traditional investment manager? Two reasons. First, if you run or plan to run funds with cryptoasset exposure, or want to offer products such as crypto exchange traded notes or tokenised funds, you need to understand which activities become regulated and whether you or your service providers need permission. Second, if you use a crypto custodian, trading venue or other provider, they will be applying for their permissions in this window, and you'll want to know whether they succeed.
B: Practically, ask your compliance team for a one page map: which of our activities touch crypto, which counterparties are involved, and what happens to us if they aren't authorised in time.
A: Now, George, the bigger story for asset managers is the FCA's overhaul of the fund manager rulebook. In July, the FCA and the Treasury published proposals to streamline UK asset management regulation. Three consultation papers are on the table.
B: Let me pick out the ones with deadlines, because they matter. CP twenty six twenty eight is about the UK Alternative Investment Fund Managers regime, and the FCA extended the deadline for responses on it, and on the prudential reform chapter, to the twenty second of October. Other chapters closed on the eighteenth of September.
A: That's important, isn't it? Prudential rules decide how much capital a manager holds and how it is supervised. If you haven't yet fed your views in through your trade body, or directly, there's under a month left.
B: There are two others. CP twenty six twenty six, on fund reporting for asset management entities, known as FRAME, closed on the twenty second of September. And CP twenty six twenty seven, on remuneration reform for solo regulated firms, closed on the sixteenth of September. The next stage is the policy statements, and the technology angle is significant: FRAME would change what data you report and in what format, so your data and reporting teams need to be following it.
A: Also, on the twenty eighth of September, so just this week, an instrument came into force making changes to the Collective Investment Schemes sourcebook following consultation. Compliance teams should check the Handbook Notice for the detail.
B: And the FCA has said it intends to consult separately on wider liquidity reforms for authorised retail funds that invest in inherently illiquid assets. That's one to watch if you run, or are planning, a long term asset fund or a similar vehicle.
A: Let me remind you of the calendar, because several dates are getting close! The fund liquidity policy statement, PS twenty six seventeen, published on the thirteenth of August, takes effect on the first of February twenty twenty seven. It applies to authorised fund managers of UK UCITS and non UCITS retail schemes, and to investment managers that have been delegated the portfolio management of those funds, and to depositaries.
B: And note this, Emma: delegated managers are caught! If you run money on behalf of a third party authorised fund manager, they are going to want evidence from you that your liquidity monitoring and stress testing meet the new standard. Expect due diligence requests from them well before February.
A: Then, T plus one settlement in the UK starts on the eleventh of October twenty twenty seven, and the American Form PF compliance date for the two thousand and twenty four amendments has been moved to the first of July twenty twenty seven.
B: Tomorrow, the first of October, the first round of Financial Ombudsman Service changes takes effect, as we mentioned yesterday. If you have retail clients, complaints handling should be aligned from tomorrow.
A: And to the United States. The Commodity Futures Trading Commission's proposal to let SEC registered advisers operate commodity pools for sophisticated investors without separate registration has a comment deadline on the fifth of October, next Monday. If you're a UK manager with American investors or American funds, your counsel will know whether this matters to you.
B: In Europe, the European Banking Authority's consultation on reclassifying large investment firms as credit institutions closes on the twenty fifth of November. It is mostly for the largest groups, but if your group has an investment firm approaching the thirty billion euro threshold, get it on the agenda.
A: And one more on a theme we flagged yesterday: cyber and operational resilience for frontier AI. The lesson from the FCA's review is that the technology speeds up how quickly vulnerabilities are found, but firms then struggle to validate and fix them in time. So it's a test of your basic controls: patching, monitoring, third party risk. If those aren't sound, no amount of new AI policy will save you.
[PAUSE]
A: Right, funds and industry! George, the story running through it is consolidation.
B: It is, Emma, and it's big! Over the past few weeks we've seen three big deals in asset and wealth management. T. Rowe Price has agreed to buy F slash M Investments, a fixed income and ETF specialist with about nineteen billion dollars of assets. That lifts T. Rowe's fixed income assets by nearly nine percent and more than doubles its fixed income ETF assets. It is expected to close in early twenty twenty seven.
A: Then there's Victory Capital, which has agreed to acquire First Eagle Investments in a deal worth around seven billion dollars, made up of about four point four billion in cash and two billion in new Victory shares. The combined firm would oversee around five hundred and seventy one billion dollars. It's expected to close by the end of the first quarter of next year, pending approvals.
B: And Vanguard is buying Altruist, a wealth technology and custody platform for independent advisers. Terms weren't disclosed, though reports put the price at around four billion dollars. Altruist will run as a standalone business after closing.
A: So what's the pattern? The buyers are paying for three things: exchange traded fund capability, wealth distribution, and technology. Each of those matters for a COO because integration is where the real work is. Systems, data, custody, transfer agency, compliance frameworks, all of it has to be brought together while clients continue to be served.
B: If you're on the receiving end of this kind of consolidation, either as a target, or as a firm whose service providers get acquired, you should make sure your contracts have change of control clauses that give you options, and that your outsourcing register shows where your critical providers might change.
A: On private credit, the liquidity story continues. Apollo, BlackRock and Cliffwater have all limited withdrawals from semi liquid vehicles in a market of around one point eight trillion dollars. And the FCA's analysis of the United Kingdom alternative fund sector, published earlier this month, found that private credit assets roughly doubled between twenty twenty one and twenty twenty five, to about three hundred and thirty five billion pounds.
B: We covered that yesterday, so I won't repeat the detail, but the lesson is unchanged. Regulators, distributors and allocators are all asking how the promise of liquidity in the fund matches the liquidity in the portfolio. And with rates where they are, the pressure on redemptions is likely to stay.
A: On the launch side, active exchange traded funds continue to be the wrapper of choice. Columbia Threadneedle has added hires for its active ETF business, after launching an emerging markets equity active ETF earlier in the month. And the pattern across Europe is the same: more managers converting or launching active strategies in an ETF wrapper.
B: A practical reminder there. An ETF is not simply a fund with a ticker. You need market makers, authorised participants, daily portfolio transparency, and a capital markets function. If your firm is planning an ETF launch, make sure operations, trading and technology have been involved from day one, not just product and distribution.
A: We've also seen a shift in sentiment in the investment trust world. Activism hasn't gone away, with Saba's Boaz Weinstein nominating himself to the board of SDCL Efficiency Income Trust, and discounts on trusts remain a live issue for boards, and for managers of listed vehicles.
B: One caveat from us. Coverage of the smaller UK fund launches, hires and closures was thin in what we could verify overnight, so we've stuck to the items that we could confirm from more than one source.
[PAUSE]
A: Right, George, the moment everyone's been waiting for! What should a COO do something about today? Three things.
B: Number one: rates, gilts and liquidity. With the ten year Treasury around five point three percent, the long gilt near five point nine percent, a Bank of England decision on the fifth of November, and the budget on the twenty eighth of October, it's time to look at cash, collateral and counterparty exposure, and to run your fund liquidity stress tests on today's yields. That's the practical basis for meeting PS twenty six seventeen by February, and if you're a delegated manager, expect your fund manager clients to ask for evidence.
A: Number two: regulation deadlines. Put three dates in the diary this week. Tomorrow, the Ombudsman changes. Next Monday, the fifth of October, the CFTC comment deadline. And the twenty second of October, the deadline for the FCA's consultation on the UK AIFM regime and prudential reform. If those need a response, get your draft moving now. And if you touch crypto at all, use the application window that opens today to understand your counterparties' plans.
B: Number three: deal readiness and resilience. The consolidation wave means your key service providers, and your own firm, could change ownership. Check change of control terms, review your outsourcing register, and make sure your resilience plans, including for AI tools and cyber, cover the possibility that a supplier's systems change at short notice.
A: And for your diary this week. Today, the American PCE inflation report. Tomorrow, the first of October, the Ombudsman changes and Accenture and Nike results. On Friday, eurozone flash inflation followed by American payrolls. Next Monday, the fifth of October, the CFTC deadline. And on the twenty second of October, the FCA's AIFM consultation closes.
B: That's it for today's Morning Update. This summary is for information only and is not investment advice. Please check the primary sources before acting on anything you've heard.
A: Thanks for listening, and have a cracking day! We'll be back tomorrow morning.