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 Thursday, the first of October, twenty twenty six. I'm Emma.
B: And I'm George! Emma, what a way to start the new quarter. Wall Street ended September with the ten year Treasury yield punching through five point three percent, its highest in more than two decades, even though American inflation came in cooler than forecast. Odd combination, isn't it?
A: It really is, George! Over here, the big surprise was the United Kingdom economy. Second quarter growth has been revised up to zero point five percent, and gilts staged a proper rally. But the Prime Minister's conference speech has put the budget, four weeks away, firmly in the spotlight.
B: On regulation, the FCA has finalised its new sustainability reporting rules for listed companies, and the first round of Ombudsman reforms goes live today. And in funds, an Australian private credit giant has frozen redemptions after a row with its auditor. Keep an eye on that one!
A: Then, as always, the three things a COO should do something about today, and your diary for the week. Right, let's get going!
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B: Let's start with markets, Emma. Wednesday was the last trading day of the month and the quarter, and it was a messy one for American stocks.
A: It was, George! The S&P five hundred fell about zero point three percent to seven thousand, six hundred and fifty one. The Dow Jones dropped almost one percent, to around fifty thousand, nine hundred and six. But the Nasdaq actually rose about zero point two percent, to just under twenty six thousand, nine hundred, because technology shares held up.
B: And that gave the S&P its worst month since June. For the week so far, the S&P is down one point two percent and the Dow is down one point eight percent.
A: Now, here's the odd part. The day began well. The Personal Consumption Expenditures report, the Federal Reserve's favourite inflation gauge, was cooler than forecast! The core measure rose zero point two percent on the month and three percent on the year, when economists had expected three point three. Headline inflation was three point four percent, against a forecast of three point seven.
B: That's a decent miss, isn't it? And American growth for the second quarter was also revised up, to two point two percent annualised.
A: But that's exactly the problem, George. Stronger growth, even with softer inflation, kept the bond market nervous. The ten year Treasury yield touched about five point three, the highest since two thousand and two on one report. The thirty year rose about five basis points, a basis point being one hundredth of a percentage point, to roughly five point six five percent.
B: One gap I'll be honest about. We couldn't pin down a reliable two year Treasury yield this morning, so we'll leave it out rather than guess.
A: Over to Asia now. Early readings suggest Japan's Nikkei was up around two percent, Hong Kong's Hang Seng up about a third of a percent, and South Korea's Kospi down about half a percent. We only have one source for that, so treat it as indicative.
B: In Europe, Wednesday was a day of two halves. The FTSE one hundred jumped to a high of around ten thousand, seven hundred and twenty five in the opening minutes, then faded to close at ten thousand, six hundred and six, down about zero point three percent. That leaves it heading for its worst month since March.
A: And it was worse on the continent. The German DAX fell about zero point eight percent, to twenty five thousand, two hundred, and the French CAC forty lost about zero point nine percent, to seven thousand, nine hundred and sixty five. Hotter inflation prints from across the euro area did the damage, and we'll come to those in a moment.
B: In the gilt market, it was a good day! The two year yield fell around eight basis points and the ten year about seven, after the upbeat growth figures. Sterling strengthened against all the other major currencies, and one report had it around one point three three against the dollar, though we haven't been able to confirm that level.
A: Commodities next. Oil is still the swing factor. The expiring November Brent contract settled near one hundred and three dollars and fifty cents, and the new front month December contract closed at about ninety eight dollars. American crude finished at around ninety dollars and forty cents. Brent rose about fourteen percent over September!
B: Gold settled near four thousand, one hundred and eighty seven dollars an ounce, but it fell around six percent in the month, its worst since June. Higher yields are not kind to a metal that pays no interest.
A: And two things we can't give you cleanly this morning: credit spreads and the yen. The sources conflict, so we'd rather say nothing than mislead you.
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B: Right, on to macro and central banks, and let's start at home, because the United Kingdom had a big day, Emma!
A: We did, George! The Office for National Statistics revised second quarter growth up to zero point five percent from zero point four. Business investment was revised up sharply, to an annualised growth rate of five point two percent from just zero point eight. And real household income per head rose by one percent in the quarter, the biggest jump since the end of twenty twenty four.
B: And the current account deficit was smaller than expected, at about nineteen point nine billion pounds against a forecast of twenty four point seven billion. The first half of the year has apparently been the strongest in the G seven.
A: That's a more resilient economy than the gloomy headlines suggest, but it also makes the Bank of England's job harder. Remember, the Monetary Policy Committee held Bank Rate at three point seven five percent last month, with three members voting for a rise. A stronger economy keeps a hike on the table for the fifth of November.
B: Now, the politics. On Tuesday, the Prime Minister, Andy Burnham, gave his first conference speech as leader. He pledged to keep the fiscal rules, and announced that the state pension triple lock would end from twenty thirty to twenty thirty one, with pensions rising by inflation or two point five percent a year, whichever is higher.
A: He also said that at a UK and EU summit later this year he will set out options for the future relationship, ranging from a customs union to returning to the single market, and even rejoining the European Union. Big stuff!
B: The bond market's first reaction on Tuesday was lukewarm. One report had the ten year gilt yield rising from about five point three five percent to five point four three percent as the spending commitments emerged. By Wednesday, though, with the growth data and the pledge of fiscal discipline, yields came back down.
A: The Chancellor, John Healey, has also promised that the budget on the twenty eighth of October will stick to the fiscal rules, and he has pointed to the already heavy cost of servicing the national debt. So, George, four weeks of speculation about tax and spending, and a market that will punish anything that looks unfunded.
B: A quick update on something we covered yesterday. The Bank of England's revised plan for unwinding its bond purchases has now been laid out in detail. It will sell most of its remaining four hundred and eighty eight billion pounds of gilts by twenty thirty four. About two hundred and twenty two billion that mature by then will simply be held to maturity, and about one hundred and forty six billion of gilts maturing between twenty thirty five and twenty forty nine will be sold. Sales are paused until April, while it consults on selling gilts directly to the Debt Management Office.
A: And the Bank's Financial Policy Committee published its record yesterday, with a clear message on private credit. It said risk taking in parts of private markets remains elevated, and that higher interest rates could increase debt pressures for leveraged borrowers, because loans in direct lending are mostly floating rate. It also noted that withdrawals from foreign private credit funds with retail and wealth investors remain elevated.
B: Which is a nice bridge to Europe, because euro area inflation is moving the wrong way. For September, Germany came in at three point three percent, France at three point four, Italy at four point one, and Spain at five percent, the highest there since twenty twenty three. Each was above forecast.
A: The euro area flash estimate is due tomorrow, with forecasters expecting around three point six percent, up from three point two in August. The European Central Bank raised its deposit rate to two point five percent in September, and the next decision is on the twenty ninth of October. One survey put the market chance of a hike then at around sixty percent as of the twenty fourth of September.
B: And a point on France. Paris is due to unveil its draft twenty twenty seven budget today, with the gap between French and German ten year yields at roughly one hundred and eighteen basis points. Bond markets are watching closely.
A: Over to America. Today we get the manufacturing survey from the Institute for Supply Management, forecast at fifty four point eight, and weekly jobless claims, forecast at around two hundred and one thousand. But the big one is tomorrow, with September payrolls, forecast at about ninety eight thousand jobs, down from one hundred and sixty two thousand in the previous report.
B: And the geopolitics. Iran says it has received Washington's response to its seven day proposal on the Strait of Hormuz, passed through Qatari mediators. The sticking point is sequencing, not substance. President Trump has denied any plan to ease sanctions. Meanwhile, exports from Saudi Arabia's Red Sea ports are recovering, which has eased some of the pressure on oil.
A: So for a COO, the practical point is this. Energy, inflation and fiscal politics are now feeding each other, and the Friday data could move gilts and Treasuries sharply. Make sure treasury and risk teams know who is on call, and that valuation inputs, like curves and discount rates, are refreshed on time.
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B: Right, let's get into regulation, Emma. Lots of paper this week!
A: There is, George! First, on the thirtieth of September, the FCA published its policy statement PS twenty six nineteen. It finalises rules to align listed companies' sustainability disclosures with the UK Sustainability Reporting Standards, which are the UK version of the international ISSB standards.
B: What's the headline? It's on a comply or explain basis, and it applies to accounting periods starting on or after the first of January twenty twenty seven, with first reports in twenty twenty eight. There's relief too, one year for scope three emissions and two years for wider sustainability disclosures.
A: Why does that matter if you're an investment manager and not a listed company? Two reasons. First, it changes the data your investment teams will receive from the companies you own, so your data and ESG teams should plan for new fields, new formats and a few years of patchy comparability. Second, if your own group is listed, it applies to you directly.
B: Also this week, on the twenty ninth of September, the FCA published PS twenty six eighteen, finalising its perimeter guidance for the new cryptoasset regime. That follows the opening of the application window, which, as we said yesterday, runs to the twenty eighth of February twenty twenty seven, with the regime itself starting on the twenty fifth of October twenty twenty seven.
A: And remember the asset management reform package. Final rules on the remuneration and fund reporting proposals are expected in the first quarter of twenty twenty seven. The deadline to keep in mind is the twenty second of October, which is when the consultation on the UK Alternative Investment Fund Managers regime and prudential reform closes.
B: Also in the diary, Emma, the Consumer Duty consultation, CP twenty six twenty three, closed on the eighteenth of September, and the FCA expects to publish final rules in the first quarter of next year. If you design products that reach retail investors, even indirectly through distributors, that scope change could shift your obligations.
A: And a reminder that the first round of Financial Ombudsman Service changes takes effect today. If you have retail clients or complaints flowing from distributors, your complaints team should confirm that procedures and management information reflect the new rules.
A: Now, the dates that matter most for fund operations. PS twenty six seventeen on fund liquidity, published in August, takes effect on the first of February twenty twenty seven. UK T plus one settlement starts on the eleventh of October twenty twenty seven. And the American Form PF compliance date has moved to the first of July twenty twenty seven.
B: And next Monday, the fifth of October, is the comment deadline for the American Commodity Futures Trading Commission's proposal on commodity pool operator exemptions for SEC registered advisers.
A: In Europe, the discussion over SFDR two point zero is moving to the final stage. The European Parliament's economic affairs committee agreed its negotiating position on the tenth of September, which means the three institutions can start trilogue talks. The new regime is on track to apply in about twenty twenty nine.
B: And the European Securities and Markets Authority has published its twenty twenty seven work programme. It says it has begun developing technical standards on fund reporting under the AIFM and UCITS directives, aiming to finish in the second quarter of twenty twenty seven, and that it will review its guidelines on fund names.
A: That's a technology story, George. Fund reporting standards decide the data fields, formats and frequency that your reporting systems must produce, and lead times for system changes are long. If you have EU funds, someone should be tracking that timetable.
B: And in the States, the SEC and the CFTC have signed a memorandum of understanding on cooperation, and issued a joint interpretation on how securities laws apply to crypto assets. If you hold or plan to hold digital assets for American clients, ask your counsel for a one page summary.
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B: Funds and industry, Emma, and let's start with the story I flagged at the top.
A: Yes! Metrics Credit Partners, a major Australian private credit manager with about forty billion Australian dollars under management, has suspended applications and redemptions in unlisted wholesale funds behind three listed trusts. Trading in the listed vehicles was halted too.
B: The trigger was a dispute with its auditor. KPMG disagreed with some of the valuation inputs and probability weightings used in the preliminary accounts. As a result, Metrics has cut the net tangible asset values of the three trusts, by around twelve percent at its real estate fund, ten percent at its income opportunities trust, and two percent at its master income trust, roughly one hundred and sixty nine million Australian dollars in total.
A: Metrics says it has no exposure to the Bathla housing developer that collapsed in August, which had unsettled a roughly two hundred billion Australian dollar private credit market. But the lesson is more general, George. When the auditor disagrees about the value, the redemption gate is not far behind.
B: Exactly. And it fits what the Bank of England said yesterday about private credit. For any COO running semi liquid or illiquid strategies, this is a prompt to check three things: your valuation policy, the timetable for auditor sign off, and whether your gating or deferral powers are documented and tested.
A: Now to UK industry deals. Liontrust is reported to be buying the fund management and model portfolio business of Hawksmoor for an initial six million pounds. A small deal, but another sign of consolidation among smaller UK managers. We have only one report so far, so we'll watch for the formal announcement.
B: On launches, Schroders has added two active fixed income ETFs, a UCITS ETF investing in contingent convertible bonds from financial institutions across dollars, euros and sterling, and one in United States dollar investment grade corporate bonds. It comes a year after its first fixed income active ETF.
A: Active fixed income in an ETF wrapper is the trend, isn't it? And, as we said yesterday, an ETF is not just a fund with a ticker. You need market makers, daily portfolio transparency and a capital markets function. Make sure your operations and technology teams are in the room from the start.
B: In the investment trust world, activism is still a fact of life. A regulatory filing shows that Saba Capital pushed its combined voting rights in BlackRock Smaller Companies Trust above fifteen percent on the seventeenth of September, mainly through a swap that runs to the fifteenth of December. For managers of listed vehicles, that means keeping the shareholder register, board communications and disclosure processes in good order.
A: And one thing we couldn't confirm: coverage of senior hires and closures was thin overnight, so we've left them out rather than risk getting a name or a figure wrong.
B: Right, Emma, over to the part everyone wants, the three things a COO should do something about today.
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A: Number one, George: valuation and liquidity discipline. With the Metrics freeze and the Bank of England's warning, ask your head of valuation and your auditors how any difficult to value assets are being priced, and when sign off is due. Review your gating and deferral tools, and check that they would work in practice, not just on paper.
B: Number two: prepare for volatile data. Payrolls and euro area inflation land tomorrow, the budget is on the twenty eighth of October, the European Central Bank meets on the twenty ninth, and the Bank of England on the fifth of November. Refresh your liquidity stress tests on today's yields, check collateral and cash buffers, and confirm who is on call.
A: Number three: calendar and data. Three dates. Monday the fifth of October, for the CFTC comments. The twenty second of October, for the UK AIFM and prudential consultation. And the first of February, for the fund liquidity rules, where delegated managers should expect due diligence requests from clients. And ask your data team what the new UK sustainability reporting standards mean for the information you receive from the companies you own.
B: And for your diary this week. Today, the first of October: Ombudsman reforms go live, the American manufacturing survey and jobless claims, and the French draft budget. Tomorrow, the second: euro area flash inflation and American payrolls. Next Monday, the fifth: the CFTC comment deadline. Further out, the twenty second of October for the AIFM consultation, the twenty eighth for the budget, the twenty ninth for the European Central Bank, and the fifth of November for the Bank of England.
A: 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.
B: Thanks for listening, and have a cracking day! We'll be back tomorrow morning.