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 Friday, the second of October, twenty twenty six. I'm Emma.
B: And I'm George! Emma, what a Thursday that was in London. The FTSE one hundred fell one point seven percent, its worst day since May, and the thirty year gilt yield broke through six percent for the first time since nineteen ninety eight!
A: Big one, George! Wall Street, by contrast, scraped out small gains, but only after Treasury yields pulled back from their highest levels in more than twenty years. And today is payrolls day in America, with euro area inflation landing this morning too.
B: In regulation, the Financial Conduct Authority's new sustainability rules are still bedding in, there's a crypto story from Europe, and a reminder of the dates piling up for fund managers. And in funds, the Australian private credit freeze rolls on.
A: Then, as always, three things a COO should do something about today, and your diary for the week. Right, let's get going!
[PAUSE]
B: Let's start with markets, Emma, and I think we begin at home, because London took the brunt of it.
A: We do, George. The FTSE one hundred closed on Thursday at ten thousand, four hundred and twenty eight, down about one hundred and seventy eight points. That's the steepest one day fall since May!
B: And the engine of it was the gilt market. The thirty year gilt yield touched six percent, the highest since February nineteen ninety eight, before easing back to around five point nine. The ten year yield also pushed above five and a half percent at one point, which is the highest since two thousand and seven.
A: Now, for anyone new to this, a yield is the return you earn on a bond, and it rises when the bond's price falls. So higher yields mean the government's borrowing costs are climbing, and that matters, because the Chancellor delivers the budget in four weeks.
B: What drove it? Strong American data, oil stuck near one hundred dollars a barrel, and the unresolved standoff between the United States and Iran. Put those together and the market starts to fear that central banks will need to keep raising interest rates.
A: On the continent, the German DAX fell about zero point nine percent, and the French CAC forty lost about one point six percent. So this was a Europe wide wobble, not just a British one.
B: Across the Atlantic it was calmer. The S&P five hundred rose zero point two percent to seven thousand, six hundred and sixty six. The Dow added a tiny zero point zero four percent, to fifty thousand, nine hundred and twenty seven, and the Nasdaq was up by about the same, to twenty six thousand, eight hundred and seventy two.
A: And stocks only got there by clawing back morning losses, George. On Wednesday the American ten year Treasury yield hit about five point three six percent, and on Thursday it retreated from that peak. We're not confident of the exact closing level, so we'll leave it at that, and we couldn't verify a clean two year or thirty year figure either.
B: The data was solid. The Institute for Supply Management's manufacturing index came in at fifty four point five, a shade below the fifty four point nine that economists expected, but well above fifty, the line between growth and contraction. And weekly jobless claims fell to one hundred and ninety seven thousand, below the two hundred thousand forecast.
A: Which is the problem, isn't it, Emma? Good news on the economy is bad news for bond prices, because it keeps rate rises on the table.
B: Exactly right. Commodities now. Brent crude rose about two percent to around one hundred dollars a barrel. Gold gained about two thirds of a percent, with spot gold at roughly four thousand, one hundred and eighty four dollars an ounce.
A: And sterling slipped about zero point four percent against the dollar, to around one point three two. We don't have reliable overnight figures for Asia, the euro, the yen or credit spreads this morning, so we're not going to guess at them.
A: And let me add some context, George. A thirty year yield at six percent means the government is locking in very expensive money for three decades. Pension funds and insurers who buy those bonds love the income, but they also hold big losses on the older, lower yielding gilts, so the pressure spreads through the whole system.
B: That's why this matters beyond the headlines, Emma. In twenty twenty two, a sharp gilt sell off exposed leveraged pension strategies and forced emergency intervention. Nobody is suggesting that is happening now, but the memory is fresh, and that's why the Bank of England watches this market so closely.
A: Quite right. And for investment managers, a fast move in yields can hit bond fund valuations, trigger margin calls on derivatives, and lead to a rush of redemption requests from clients. It's an operational story as much as a market one.
B: Which is why the regulators keep asking firms about liquidity, isn't it? We'll come to that in a few minutes.
B: Fair enough! Now, on to macro and central banks.
[PAUSE]
B: Right, macro, Emma, and the story is the same one in different accents. Energy, inflation and rates.
A: It is, George. Let's start with the Bank of England. Bank Rate is three point seven five percent, and last month three members of the Monetary Policy Committee voted for an increase. Since then, the tone has hardened.
B: It has! The Governor, Andrew Bailey, has said that persistently high energy prices make it harder to keep rates on hold. Two other members, Sarah Breeden and Clare Lombardelli, have signalled they are moving closer to backing a rise. And the Bank's chief economist, Huw Pill, has called for a prompt increase, to stop an energy shock becoming embedded in prices.
A: One report put the market chance of a rise at the next meeting, on the fifth of November, at around eighty percent. Treat that as indicative, because it's a single source, but the direction of travel is clear.
B: And there's the fiscal side. Chancellor John Healey delivers the budget on the twenty eighth of October, and has promised to stick to the fiscal rules. Gilt yields at these levels make that harder, because every extra bit of interest the government pays eats into its headroom.
A: So here's the squeeze, George. The Chancellor needs to look credible to the bond market, the Bank of England may be about to raise rates, and the public finances are under pressure. That's a tough four weeks, and the market will punish anything that looks unfunded.
B: Over to the euro area. Inflation there has been climbing. The August figure was confirmed at three point two percent, after an early estimate of three point three, with energy prices up more than fourteen percent on the year.
A: And this morning, the flash estimate for September is due from Eurostat. We couldn't find a reliable consensus forecast, but national figures this week came in hot, so the risk is clearly to the upside. The European Central Bank has already raised its deposit rate this year, and its next decision is on the twenty ninth of October.
B: Now to America. Today brings the big one, September payrolls, at half past one our time. Last month's report showed one hundred and sixty two thousand jobs added, after a fall of twenty three thousand in July, with unemployment steady at four point one percent. Forecasters expect a much smaller number this time, though sources differ on exactly how small.
A: And the Federal Reserve meets on the twenty eighth of October. One report we saw suggested the market sees roughly even odds or better of another hike. We can't pin that down, so the safer message is this: the market expects the Fed to stay in tightening mode, and today's jobs number could move that a lot.
B: A word on geopolitics, Emma. The standoff between Washington and Tehran over the Strait of Hormuz remains unresolved, and that's what is keeping Brent around the one hundred dollar mark. Any phased deal to reopen the strait could take the pressure off oil and bond yields quickly. A breakdown would do the opposite.
A: So for a COO, what's the takeaway? Rates volatility isn't just a trading desk problem. It hits fund valuations, collateral calls, liquidity buffers and the cost of any borrowing your funds use.
B: Quite. If your risk team hasn't re-run liquidity stress tests on this week's yield levels, today is a good day to ask. And make sure someone senior is reachable this afternoon when payrolls land.
A: Good point. Right, George, regulation!
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B: Over to regulation, Emma. It's a quieter day for new paper, but there's plenty going on underneath.
A: There is. Let's start in Brussels. On the thirtieth of September, the consultation on the review of the Markets in Crypto Assets Regulation, known as MiCA, closed. And the European Securities and Markets Authority has put out its response, calling for targeted changes.
B: What does it want? Stronger investor protection, closing gaps in the rules, and clearer treatment of newer activities like decentralised finance, staking, lending and borrowing. It's a response to a Commission consultation, so nothing changes overnight. But it shows where EU crypto rules are heading.
A: And what does that mean for a COO? If your firm touches digital assets for European clients or funds, ask your compliance team to read the response and note where the rules may tighten, particularly for custody and staking arrangements. Better to plan early than scramble later.
B: Back in London. The Financial Conduct Authority has announced new board appointments. Lea Paterson and Matthew Tobin join as non executive directors, and the deputy chief executive, Sarah Pritchard, joins the board as an executive member. All three started yesterday.
A: Not a rule change, but boards shape priorities, so it's worth noting. And the FCA's Annual Public Meeting is on Tuesday, the sixth of October, in Edinburgh, online and in person. It's usually a good window into regulatory priorities, so it's worth having someone in compliance listen in.
B: Now, what's still on the desk from recent weeks? In July, the FCA published three consultation papers on asset management reform. CP twenty six twenty eight covers the future regime for alternative fund managers, alongside a draft statutory instrument from the Treasury. CP twenty six twenty seven covers remuneration for solo regulated firms, and CP twenty six twenty six proposes a new fund reporting regime.
A: And that last one is a technology story, George. A single reporting framework, calibrated to the type, size and activity of the fund, with essential and enhanced features. That will mean new data fields, new formats and new systems work. If you run funds, ask your operations and data teams now what they would need to build.
B: Remember too, the consultation on the alternative fund managers regime and prudential reform is due to close on the twenty second of October, so if you want to respond, your drafting needs to start soon.
A: Then, the firm dates. PS twenty six seventeen, on enhancing fund liquidity risk management, was published on the thirteenth of August and takes effect on the first of February twenty twenty seven. That's about four months away, and delegated managers should expect due diligence questionnaires from their clients.
B: And the further dates. UK settlement moves to a one day cycle, T plus one, on the eleventh of October twenty twenty seven. The American Form PF compliance date has been delayed to the first of July twenty twenty seven. And the new UK cryptoasset regime starts on the twenty fifth of October twenty twenty seven, with its application window running to the twenty eighth of February twenty twenty seven.
A: George, that's a lot of dates. If I were a COO I'd want them in one regulatory calendar, with an owner for each, so nothing falls between teams.
B: Absolutely. And one more worth knowing. Earlier this week, the FCA finalised sustainability disclosure rules for listed companies, aligned to the UK Sustainability Reporting Standards, in PS twenty six nineteen. If your investment teams use that data, they will see new fields and new formats over the coming years.
A: And yesterday also saw the first round of Financial Ombudsman Service changes take effect, so if you have retail client complaints, make sure your complaints team has confirmed the new procedures.
B: And in the States, the SEC and the Commodity Futures Trading Commission have signed a memorandum of understanding and issued a joint interpretation on how securities laws apply to crypto assets. If you hold digital assets for American clients, ask counsel for a short summary.
A: Right, George, that's regulation. Funds and industry next!
[PAUSE]
B: Funds and industry, Emma, and let's start with the story that keeps developing.
A: Metrics Credit Partners, one of Australia's biggest private credit managers. On the twenty eighth of September it suspended trading in three of its listed funds, and applications and redemptions in related unlisted funds.
B: The trigger was a dispute with its auditor, KPMG, which made different decisions on inputs and probability weightings from those in Metrics' preliminary accounts. The result was cuts to net tangible asset values of about twelve percent at the real estate fund, about ten percent at the income opportunities trust, and about two percent at the master income trust.
A: And it comes as the Australian regulator, ASIC, has warned that private credit firms failing to meet its standards should prepare for enforcement action. Metrics says it isn't aware of any investigation into its specific practices.
B: For a COO, the lesson hasn't changed, has it, Emma? When the auditor and the manager disagree about value, the gate is never far behind.
A: Exactly, George. Check three things. Your valuation policy for hard to value assets. The timetable for auditor sign off. And whether your gating and deferral powers are written down and tested.
A: And, George, here's why that matters in practice. In private credit, most of the loans are floating rate, so higher interest rates push up the cost for borrowers. That's the point the Bank of England made in its Financial Policy Committee record this week, along with a warning that withdrawals from foreign private credit funds aimed at retail and wealth investors remain elevated.
B: So the sequence is: higher rates, stretched borrowers, tougher valuations, and then investors queueing to get out. Each link is plausible, and a COO should know where in that chain their own funds sit.
A: Absolutely. It's also worth asking whether your investor communications are ready. If you ever need to gate a fund, the first twenty four hours of messaging to clients, distributors and the regulator matter enormously.
B: Spot on, Emma. A tested plan beats an improvised one every single time.
B: There's another sign of stress. One report says that Apollo met redemption requests for only five percent of shares in one vehicle, roughly seven hundred and thirty million dollars, so investors received about forty five percent of what they asked for. We've only got one source on that, so treat it as indicative.
A: Still, it all points the same way. Semi liquid funds for wealthy and retail investors are being tested, just as the Bank of England's Financial Policy Committee warned this week.
B: On the deals front, the big structural story this year remains consolidation. Nuveen's agreed bid for Schroders, valuing it at up to nine point nine billion pounds, is expected to complete in the fourth quarter, subject to shareholder and regulatory approvals. Trian and General Catalyst have also made a combined bid for Janus Henderson.
A: Worth saying, George, that Nuveen and Schroders is not new news, it dates from February, but completion is close, so for any firm involved in the transition, or a counterparty to either group, the practical work of integrating systems and suppliers is coming up quickly.
B: A quick thought on that, Emma. Whenever an asset manager is acquired, the people who feel it first are in operations, technology and compliance. Systems get merged, suppliers get renegotiated, and policies need aligning.
A: And those teams often get the least warning! So if you're a service provider, a delegate or a counterparty to either group, it's worth speaking to your relationship managers now, before the integration timetable lands on your desk.
B: In launches, a new European credit house, Valcia Asset Management, launched on the twenty ninth of September with backing from the New York alternatives specialist Värde Partners, which oversees about fifteen billion dollars. A reminder that new managers are still launching, even in a tricky market.
A: And in UK fund launches, T Bailey says it's launching a focused UK Best Ideas fund of funds from the first of October, waiving initial fees. We only have a brief report on it, so we'll watch for detail.
B: One thing we couldn't confirm, Emma: senior hire moves and fund closures were thin overnight, so we've left them out rather than risk the wrong name or number.
A: Wise. Right, George, over to the part everyone wants, the three things a COO should do something about today.
[PAUSE]
A: Number one, George: stress your liquidity and collateral on today's yields. With the thirty year gilt above six percent and the ten year Treasury above five percent, ask your risk team to re-run stress tests, check collateral and cash buffers, and confirm who is on call over payrolls this afternoon.
B: Number two: valuation and gating readiness. With the Metrics freeze and the Bank of England's private credit warning, ask your head of valuation how difficult assets are being priced, and check that your deferral powers would work in practice, not just on paper.
A: Number three: put the dates in one regulatory calendar. The twenty second of October for the alternative fund managers consultation, the first of February for fund liquidity rules, and the longer dated T plus one and cryptoasset deadlines. Each one needs an owner, and a plan.
B: And for your diary this week and next. Today, the second of October: American payrolls at half past one, and euro area flash inflation. Tuesday the sixth: the FCA's Annual Public Meeting in Edinburgh. Further out, the twenty second of October for the consultation deadline, the twenty eighth for the budget and the Federal Reserve meeting, 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 weekend! We'll be back on Monday morning.