A: Good morning, and welcome to the Morning Update! Your daily twenty minute digest of markets, macro, regulation and the fund industry, built for the operating side of an investment firm. It's Monday, the fifth of October, twenty twenty six. I'm Emma.
B: And I'm George! Emma, what a way to end the week. A weak American jobs report on Friday sent bond yields tumbling, and Wall Street cheered, with the Nasdaq jumping one point two percent!
A: Big one, George! Only twenty nine thousand jobs were added in September, against around eighty four thousand expected, and the odds of an October Federal Reserve rate hike took a real knock. The FTSE one hundred rose a third of a percent to close the week at ten thousand, four hundred and sixty two.
B: But it's not all calm. Euro area inflation jumped to three point eight percent, its highest in three years. The Bank of England is leaning towards a rate rise next month. And oil is still stuck above one hundred dollars a barrel.
A: In regulation, we look at where the asset management reform package stands, and the long list of deadlines. In funds, a big options income ETF deal, and a wave of ETF launches. Then three things a COO should act on today, and your diary for the week. Right, let's get into it!
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B: Markets first, Emma, and Friday was a proper reversal. Let's start in New York.
A: We will, George. The Dow Jones added about two hundred and fifty points, or zero point five percent, to close at fifty one thousand, one hundred and seventy six. The S&P five hundred rose about zero point seven percent to seven thousand, seven hundred and twenty three, and the Nasdaq surged one point two percent to twenty seven thousand, one hundred and ninety one.
B: And Nvidia led the charge, touching a fresh intraday record! Though one thing to keep in mind, the Dow and the S&P are both still lower on the week. Only the Nasdaq finished in the green.
A: Now the reason for the rally. Payrolls rose by just twenty nine thousand, the unemployment rate ticked up to four point two percent from four point one, and traders decided the Fed would be less likely to raise rates this month.
B: That hit bond yields straight away. The ten year Treasury yield dropped to around five point one eight percent, the two year to about four point seven three, and the thirty year to about five point five seven.
A: But here's a caveat, George. Reports say yields drifted back up through the session, so we can't give you reliable closing levels. Treat those as the morning reaction, not the settlement.
B: Fair point, Emma. Now to London. The FTSE one hundred closed at ten thousand, four hundred and sixty two, up about zero point three percent, a modest recovery after Thursday's sharp fall. It still lost around two percent on the week.
A: And that Thursday story was about gilts. The thirty year gilt yield touched six percent for the first time since nineteen ninety eight, then eased to around five point nine. Friday's global bond rally offered some relief.
B: For anyone newer to this, a yield is the return on a bond, and it rises when the price falls. So six percent on a thirty year gilt means the government is paying a lot to borrow, which matters with the budget just over three weeks away.
A: And a little more on the world. In Asia this morning, Japan's Nikkei is up two point five percent at about seventy thousand, Taiwan is up about the same, and South Korea's Kospi is up about half a percent. But Hong Kong's Hang Seng is slightly lower, down about zero point two percent.
B: Commodities, Emma. Brent crude is around one hundred and one dollars a barrel this morning, down about one percent on the day. That's still more than fifty percent higher than a year ago!
A: Which tells you why inflation is the story. Gold is a little softer too. One report put gold futures around four thousand, one hundred and sixty dollars an ounce on Friday, down about one percent, but sources differ, so treat that as a rough guide.
B: In currencies, the dollar index was a little lower on Friday, at around one hundred and two, and the dollar against the yen was about one hundred and fifty eight. We couldn't get clean figures for sterling or the euro, or for credit spreads, and the European open this morning, so we'll leave those out.
A: Right, George, and the wider message for a COO is what?
B: Volatility is back, Emma. Two weeks of sharp moves in yields, and one headline can swing them. That's a test of your liquidity plans, collateral processes and out of hours escalation.
A: Absolutely. If yields can fall six basis points on a jobs number and then drift back, margin calls and valuations can move all day. Make sure your operations team can see intraday exposures, not just the end of day picture.
A: Let me add some colour on that, George. A jobs number that misses by that much would normally be shouted about as a sign of a weakening economy. But with inflation running hot, the market is reading it two ways at once, as relief for rate hike worries and as a warning about growth.
B: Which is the awkward bit for central bankers, Emma! Slowing jobs and rising prices at the same time is the combination they dislike most, because the usual tools only fix one of the two problems.
B: Good point. Right, on to macro and central banks!
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A: Macro, George, and it all comes back to energy and inflation, in different accents.
B: It does, Emma. Let's start with Europe, because Friday's number was a shock. Euro area inflation rose to three point eight percent in September, from three point two in August. Economists were looking for three point six!
A: And energy is the culprit. Energy prices were up eighteen point eight percent on the year, compared with fourteen point three in August. Core inflation, which strips out energy and food, came in at two point five percent, in line with expectations. Prices rose zero point six percent in the month.
B: So it's mostly energy, but it's big. And remember the European Central Bank has already moved. On the tenth of September it raised all three key rates by a quarter of a point, taking the deposit rate to two point five percent. That was the second rise this year.
A: Its next meeting is on the twenty eighth and twenty ninth of October, in Frankfurt. And this week, on Thursday, the ECB publishes the accounts of its last meeting, which should show how urgent the debate about tightening really was.
B: Now Britain. The Bank of England held Bank Rate at three point seven five percent on the seventeenth of September, but the vote was six to three, with Megan Greene, Catherine Mann and Huw Pill voting for a quarter point rise.
A: And the other four members who voted to hold, Governor Andrew Bailey and deputies Sarah Breeden, Clare Lombardelli and Dave Ramsden, said the case for a rise grows the longer high energy prices persist. That's a clear signal.
B: Markets agree. One report puts the chance of a rise on the fifth of November at about eighty eight percent. That's a single source, so treat it as indicative, but the direction is plain. The Bank also expects inflation a little above four percent in the first quarter of next year.
A: And then the Chancellor, John Healey, delivers his budget on the twenty eighth of October. He's under pressure to fund defence spending and cost of living support, and to keep to his fiscal rules. All while the market charges more than five and a half percent for ten years' borrowing, and around six percent for thirty.
B: That's the squeeze, Emma. Every little rise in yields cuts into the Chancellor's headroom, and anything that looks unfunded will be punished by bond investors.
A: Across the Atlantic, the Federal Reserve is the main event. Friday's weak jobs report has cooled expectations of an October hike. But with inflation still high, nobody is saying the Fed is finished, and the next decision is on the twenty eighth of October.
B: And there are two data points to keep an eye on. This afternoon the American services survey from the Institute for Supply Management is due, and forecasters expect fifty five point one, against fifty five point four last time. Anything above fifty means growth.
A: And on Wednesday we get the minutes of the Fed's September meeting. They'll show how close the committee was to hiking, and how it reads the labour market. After Friday, the jobs details will matter more than ever.
B: Closer to home, today brings the final September purchasing managers' surveys for the UK, and on Tuesday the construction survey is expected around forty five, which would still signal contraction. UK building remains weak.
A: Now geopolitics, George. American and Iranian negotiators have been talking in New York about a phased route out of the conflict, in which Tehran would reopen the Strait of Hormuz and Washington would lift its blockade on Iran.
B: And that's the swing factor for oil. A deal could pull Brent down quickly and ease the pressure on bond yields. A breakdown does the opposite. Houthi attacks on Saudi Arabia also keep the risk premium alive.
A: So for a COO, the macro picture means higher funding costs, volatile valuations and clients asking more questions about liquidity. Have your treasury and risk teams agreed a plan for a rate rise in London on the fifth of November?
B: Good question, Emma. And a plan for a Fed surprise in either direction. Right, regulation!
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A: Regulation, George, and I'll be honest with listeners, it's a quieter morning for fresh papers. So let's spend the time on what's on the desk and what's coming.
B: Wise. Starting with the headline event. The FCA holds its Annual Public Meeting in Edinburgh tomorrow, the sixth of October, for the first time in the city. It's a chance to hear the regulator's priorities and the questions firms and consumers are asking.
A: And it's usually a decent barometer of tone. Worth having someone from compliance listen in, and report back on anything about asset management, enforcement or the push to cut regulatory burden.
B: Which leads us to the big reform package. In July, the FCA published three consultation papers. CP twenty six twenty six on fund reporting, CP twenty six twenty seven on remuneration for solo regulated firms, and CP twenty six twenty eight on the future alternative fund managers regime.
A: Two of those have now closed. The remuneration consultation closed on the sixteenth of September, and the fund reporting one, known as FRAME, on the twenty second of September. The FCA estimates the package could save asset managers about one hundred and twenty eight million pounds a year.
B: And the third, the alternative fund managers regime, is still open. One law firm summary gives the closing date as the fourteenth of October, while we had it as later in the month last week. So please confirm the exact date directly with the FCA, because it's days away either way.
A: What does that mean for a COO? First, if you want to influence the final rules, your response needs to be drafted now, not next week. Second, the proposals change who is responsible for what, and how firms report, so operations and compliance need to map the impact.
B: And the fund reporting regime is a technology story, Emma. A single reporting framework means new data fields, new formats and new systems. Final rules are still to come, but if your data team hasn't started scoping, it's later than you think.
A: Exactly. Now, the dates. The fund liquidity rules in PS twenty six seventeen take effect on the first of February twenty twenty seven. That's under four months away. Delegated managers should expect due diligence questionnaires from their clients.
B: And the long dated ones. UK settlement moves to a one day cycle, known as T plus one, on the eleventh of October twenty twenty seven. Form PF in the United States has been delayed to the first of July twenty twenty seven. And a lot of operational change has to be built before any of them.
A: George, if I ran operations, I'd want every deadline in one regulatory calendar with a named owner for each. It sounds dull, but missing a date between teams is how firms end up in front of the regulator.
B: Quite right! Now a word on semi liquid funds, because regulators are watching them closely. A long term asset fund, or LTAF, normally limits redemptions to five percent of net asset value each quarter, and can gate if demand is higher.
A: And with private credit under strain, the key question for any COO is whether those limits are properly explained to investors and tested in practice. The mechanics of a gate matter far more on the day than the wording in the prospectus.
B: Spot on. And the same goes for valuation. When markets move fast, regulators expect firms to show how hard to value assets are priced, who challenges the numbers, and how conflicts are managed.
A: Looking across the Channel, we didn't find a significant new publication from the European Securities and Markets Authority or the American SEC overnight, so rather than stretch for something, we'll flag that the crypto rules in both places are still evolving, and ask compliance to keep tracking them.
B: That's honest, and I like it. And for the Prudential Regulation Authority and the Bank of England, the thing to watch is the gilt market, given the six percent print last week. Expect questions about liquidity and leverage in any market stress.
A: Let me make it practical, George. If a regulator rang your firm this morning about yields and fund liquidity, who would answer, what data would they have to hand, and how fast could they produce it?
B: That's the test! If the answer is "it depends who is in", you have a resilience gap. Write down the owner, the data, and the deadline for each answer.
B: And Emma, one more practical point on all of this. Whenever rate expectations swing, clients ask the same three questions: what is happening to my fund, can I get my money out, and what are you doing about it?
A: Which is why a ready set of holding statements and a clear escalation path are worth far more than they cost to prepare. Test them before the busy days arrive, not during them.
A: Good. Right, funds and industry!
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B: Funds and industry now, Emma, and a deal that deserves a mention.
A: Go on, George!
B: Goldman Sachs has agreed to buy NEOS Investments, a specialist in options based income ETFs, for up to two point two five billion dollars in cash and stock. It was announced in August, and is expected to close in the first quarter of next year.
A: NEOS runs about thirty billion dollars across nineteen options income ETFs, and Goldman already manages about forty billion dollars in similar strategies. Part of the price depends on performance and staff staying on.
B: And what does that tell us, Emma? That income focused ETFs are one of the hottest areas in the industry, and that big houses would rather buy a franchise than build one.
A: Exactly. For operations teams, any deal like this means a long integration. Systems, suppliers, reporting lines and fund documents all need aligning, and the people feeling it first are in operations, technology and compliance.
B: So if you are a service provider, a delegate or a counterparty to a firm in a deal, speak to your relationship managers early. Don't wait for the integration plan to land on your desk.
A: Now launches. ETF Express's weekly round up of global ETF launches shows plenty of activity. Invesco launched five new regional enhanced equity ETFs. Nomura Asset Management launched a global memory index ETF in Japan. And Ping An Asset Management launched healthcare and artificial intelligence ETFs in Hong Kong.
B: And in America, Northern Trust Asset Management plans to convert six of its mutual funds into ETFs in the first quarter. That's another sign of the ETF wrapper winning the argument.
A: And, George, for a COO, a conversion or launch isn't just a marketing story. It means new share classes, new market makers, new data feeds and new custody and fund accounting set ups. If your firm is planning anything similar, the operating model needs to be ready before the launch date.
B: Absolutely. And in the private markets world, Apollo has launched a multi sector private credit LTAF for UK defined contribution pension schemes, following FCA authorisation. That was announced in March, so not new, but it matters now.
A: Why now, George?
B: Because when private credit stories turn nervous, as they did in Australia last week with the Metrics Credit Partners freeze, the question for every semi liquid fund becomes, how would ours behave under pressure? We had no fresh update on that situation overnight.
A: And pension trustees will be asking exactly that. A COO who can show a tested liquidity and gating playbook is going to have an easier conversation than one who can't.
B: There's one more point, Emma. We couldn't verify senior hires, fund closures or fresh redemption news over the weekend, so we've left them out rather than guess.
A: Quite right. Let's turn to the part everyone's waiting for, the three things a COO should do something about today.
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A: Number one, George: re-run liquidity and collateral stress tests on this month's yields. Two weeks of big moves in bonds, with the thirty year gilt touching six percent, mean your risk team should look at margin, cash buffers and redemption scenarios, and confirm who is on call.
B: Number two: prepare for rate decisions and the budget. The Bank of England could raise rates on the fifth of November, the ECB and the Fed meet in the last week of October, and the Chancellor speaks on the twenty eighth. Agree your plan for each, with named decision makers.
A: Number three: lock down your regulatory calendar. Confirm the closing date for the alternative fund managers consultation, scope the technology work for fund reporting, and make sure someone owns the first of February liquidity deadline, T plus one, and Form PF.
B: And for your diary this week. Today, Monday the fifth of October: the American services survey from the Institute for Supply Management, and final UK purchasing managers' surveys. Tuesday the sixth: the FCA's Annual Public Meeting in Edinburgh, and the UK construction survey.
A: Wednesday the seventh: the minutes of the Federal Reserve's September meeting. Thursday the eighth: the ECB's accounts of its last meeting. Friday the ninth: Chinese inflation, Canadian jobs and American consumer sentiment. Then the alternative fund managers consultation, by the middle of the month.
B: And further out, the budget and the Fed on the twenty eighth of October, the ECB on the twenty ninth, and the Bank of England on the fifth of November.
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 start to the week! We'll be back tomorrow morning.