A: Good morning, and welcome to the Morning Update! Your daily digest of markets, macro, regulation and the fund industry, built for the people who run the operating side of an investment firm. It's Tuesday, the sixth of October, twenty twenty six. I'm Emma.
B: And I'm George! Emma, what a morning to be awake. Wall Street pushed the Nasdaq to a fresh record on Monday, led by Nvidia, even though bond yields are still sitting near multi decade highs!
A: That's the odd combination, George. Tech shares up, bond markets on edge. The ten year Treasury yield is hovering around five point three percent, and in London the thirty year gilt has been flirting with six percent, a level we haven't seen since nineteen ninety eight.
B: And the Bank of England is at it again, with another policymaker leaning towards a rate rise next month. Plus, the Financial Conduct Authority is holding its annual public meeting in Edinburgh today, and a major consultation on asset manager rules closes in just over a week.
A: So this morning we cover markets, then macro and central banks, then regulation, with a few fresh dates for the calendar. After that, funds and industry, and then the three things a COO should do something about today, plus your diary for the week.
B: Right, Emma, let's get into it!
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B: Markets first, and we start in New York, where Monday was a good day for tech, and a patchy one for everything else.
A: Let's give the numbers, George. The S&P five hundred rose about zero point seven percent. The Dow Jones added around zero point two percent. And the Nasdaq Composite gained about one percent to close at a record, a little above twenty seven thousand, four hundred.
B: Nvidia led the way, Emma. It climbed more than two percent to a record close, and its market value is now around five point eight trillion dollars! That's a company worth more than most entire stock markets.
A: Remarkable. And it matters for anyone running money, because a handful of giant technology names now drive so much of the index. If you hold a broad American equity fund, you are carrying a big concentrated bet whether you meant to or not.
B: Now, the bond story, which is the other half of the picture. The ten year Treasury yield rose about three basis points to around five point three one percent, close to its highest since two thousand and two. A basis point, for newer listeners, is one hundredth of a percentage point.
A: Yet stocks shrugged it off, because Friday's weak jobs report had already cooled talk of an October Federal Reserve rate rise. We don't have clean closing figures for the two year and the thirty year, so we'll leave those out rather than guess.
B: Fair. And the economic data was mixed, Emma. The American services survey from the Institute for Supply Management came in at fifty four point nine for September, down from fifty five point four in August. Anything above fifty means expansion, so activity is still growing, just more slowly.
A: But look at the prices paid element, George. It rose to seventy four from seventy two point six. That is a lot of businesses saying their costs are climbing, and it's exactly what central bankers don't want to see!
B: Spot on. Slower growth and rising costs, again. Now to London. We're not going to quote a closing level for the FTSE one hundred this morning, because sources conflict on the final figure. The direction was modestly higher, helped by energy shares.
A: Honest, and I like it. Gilts are the bigger story. The thirty year yield touched six percent last week for the first time since nineteen ninety eight, and the ten year has been around five and a half percent, its highest since two thousand and seven.
B: In plain English, Emma, the government's borrowing costs are very high, and the Chancellor's budget is on the twenty eighth of October, just over three weeks away. Everything the Treasury says or leaks between now and then is going to move that part of the curve.
A: Oil is next, and this one is genuinely messy. Brent was reported at around one hundred dollars a barrel on Monday, down nearly two percent on one account, with a rebound into the high nineties reported this morning. Sources differ on the exact level, so think of it as a range.
B: What's not in doubt is the cause. Talks over reopening the Strait of Hormuz. American officials have sounded upbeat, with one suggesting a deal could come in a day or two, while Iranian officials have insisted no negotiations with Washington are taking place!
A: And American strikes near the strait have complicated things. So oil is trading on every headline, up on a setback, down on a hint of progress. We couldn't verify clean overnight figures for Asia, gold, sterling, the euro, the yen or credit spreads, so we'll skip them.
B: Which brings us to the so what for operations, Emma.
A: Here it is, George. When one asset class is breaking records and another is hitting multi decade highs in yield, valuations, margin and collateral all move at once. Operations teams should check how quickly they can see exposures during the day, not just at the close.
B: And don't forget the human side. Who is on call when oil jumps at three in the morning? That's worth knowing before it happens. Right, macro and central banks!
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A: Macro now, George, and the theme this week is the same one it's been for a month. Energy prices are pushing inflation up, and central banks are deciding how far to lean against it.
B: Let's start in the United Kingdom, because there's fresh talk from the Bank of England. Deputy Governor Dave Ramsden said on Monday that he would support rate rises if inflationary pressures persist. That echoes recent warnings from Governor Andrew Bailey.
A: And remember, at the September meeting the Bank held Bank Rate at three point seven five percent, but the vote was six to three, with three members wanting a quarter point rise. The other four were already saying the case for a rise grows the longer energy prices stay high.
B: So the committee is drifting one way, Emma. Markets are now putting the odds of a quarter point rise on the fifth of November at roughly eighty percent, with several more rises priced in over the following year. Of course, market pricing is an indication, not a promise.
A: That matters for anyone with floating rate borrowing, from fund level credit lines to the firm's own facilities. It's also a reminder that the Bank's inflation forecast is what drives the debate, not the jobs data.
B: Speaking of which, the final September services survey for the UK came out, and one report put it at about fifty point eight, down from fifty four point two in August. That would be the weakest reading in five months, with firms holding back spending ahead of the budget, and job cuts continuing.
A: So we have inflation worries and weak activity at the same time. It's not an easy position for a central bank, George, or for a Chancellor!
B: Quite. Let's go to the Chancellor. The Autumn Budget is on the twenty eighth of October, and what we know is that bond investors are watching for anything that looks unfunded. If gilt yields rise further, the room the Chancellor has under his fiscal rules shrinks, and fast.
B: A big rise in borrowing costs makes the arithmetic harder.
A: And for COOs, the budget is about more than tax rates. Look for changes to pensions, savings, stamp duty and anything touching funds or investment products, because each of those can mean new systems work and client communications on a very short timetable.
B: Across the Atlantic, the Federal Reserve is the next big event, and this week brings the minutes of its September meeting, out on Wednesday. Those should show how close the committee came to raising rates.
A: And after Friday's weak jobs number, the minutes could look a little stale, or they could look important. That's why the market is watching the details of how members describe inflation, not just the headline.
B: Remember the next Fed decision is on the twenty eighth of October, the same day as the budget. A busy day for anyone watching rates!
A: In Europe, the European Central Bank published no new decision, but on Thursday it releases the accounts of its last meeting, which will show how divided policymakers were about tightening. Its next meeting is on the twenty ninth of October.
B: And the euro area inflation figure for September, three point eight percent, we covered yesterday, so no need to repeat it, except to say that energy is the main driver, and it keeps pressure on the ECB too.
A: Geopolitics, then. The Iran story we mentioned in markets is the single biggest swing factor across oil, inflation, bond yields and central bank decisions. If a deal on Hormuz lands, Brent falls, yields ease, and rate rise bets fade.
B: If it fails, the opposite, Emma. That's why the talks are worth following even if you never touch a barrel of oil. They shape your funding costs, your client flows and your valuations.
A: Practical point for the COO, George. Do your treasury and risk teams have a written plan for a rate rise in London on the fifth of November, and one for a surprise from either the Fed or the ECB at the end of October?
B: And do they know who decides? A plan with no named owner is a wish list. Good, let's turn to regulation!
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A: Regulation, George, and I'll say it plainly, a quieter day for brand new papers, but there is plenty to organise.
B: Starting with today's event. The Financial Conduct Authority is holding its Annual Public Meeting in Edinburgh, at the Assembly Rooms, and online, for the first time in the city. It's the regulator's chance to explain its priorities and answer questions from the public.
A: It's a good barometer of tone, so have someone from compliance listen in, and flag anything about asset managers, enforcement, or the push to reduce regulatory burden.
B: Next, the date that is now firmly confirmed. Last week we told listeners the closing date for the alternative fund managers consultation needed checking. Two sources now give the same answer. CP twenty six twenty eight, on the future regime for alternative fund managers, closes on the fourteenth of October.
A: That's just eight days away, George! This is the proposed new UK regime for alternative investment fund managers, and it's part of the package that the FCA says could save asset managers about one hundred and twenty eight million pounds a year across the three papers.
B: The other two consultations have already closed. Remuneration for solo regulated firms closed on the sixteenth of September, and the fund reporting proposals, known as FRAME, closed on the twenty second.
A: So what does a COO do about the alternative fund manager paper? First, decide whether the firm will respond, directly or through a trade body. Second, work out which operational processes depend on the current rules, such as reporting, risk, depositary oversight and delegation, so you know what the proposals would change.
B: And for the technology team, the FRAME proposals mean one reporting framework replacing a patchwork. That looks simple on paper, Emma, but it means data mapping, new fields and probably new systems. The final rules aren't out yet, so now is the time to scope, not to build.
A: Now something new. The FCA published its Handbook Notice on the twenty fifth of September. It records rule changes from July and September, including a set of minor changes relating to the liquidity management of collective investment schemes.
B: Which links nicely to the big dated change. The fund liquidity rules in policy statement twenty six seventeen start on the first of February twenty twenty seven. That's less than four months away.
A: If your firm delegates management, expect your clients to be asking questions about how you meet those rules, and how you will evidence it. Have your liquidity tools, your governance papers and your documentation ready for those requests.
B: And there's another long dated one that came up in the last few days, Emma. The FCA's cryptoasset authorisation gateway opened on the thirtieth of September. Firms that want to carry on with crypto activities need to apply by the twenty eighth of February twenty twenty seven, and the new regime starts on the twenty fifth of October twenty twenty seven.
A: Now, most investment managers don't carry out crypto activities directly, but many are being asked about it. If your firm holds crypto exposure through funds, or is thinking about a crypto ETN or fund, check with legal and compliance whether any activity could fall within the new regime. Applying late means more limited permissions, so the timing matters.
B: Let's go to the other big dates. UK settlement moves to a one day cycle, T plus one, on the eleventh of October twenty twenty seven. And Form PF in the United States has been delayed until the first of July twenty twenty seven.
A: A year is not long for a change to settlement, George. T plus one means shorter windows for allocations, confirmations, funding and fixing errors. Every manual process will be tested.
B: Absolutely. So if I were running operations, I would use the next twelve months to run dry runs, and find which suppliers, custodians and transfer agents can keep up.
A: Now, the Bank of England's private markets work. A number of private credit managers have volunteered for the Bank's private market stress test, which is running through this year in two stages. We don't have fresh results this morning, but the findings, when they arrive, are likely to shape expectations for semi liquid funds.
B: And that, Emma, is the theme running through everything on regulation. Liquidity, valuation and the match between what a fund promises investors and what it can deliver.
A: Which is why I'd ask every operations head, George, could we produce, today, a list of our funds, their dealing terms, their liquidity tools and who can pull each lever?
B: Because if a regulator or a client rings during market stress, speed and clarity are the whole game. The firms that look calm are the ones that have written it down.
A: Beyond London, we didn't find any significant new publication overnight from the European Securities and Markets Authority or the American Securities and Exchange Commission, so we'll flag that and move on rather than stretch.
B: Sensible. Right, let's turn to funds and industry!
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B: Funds and industry now, Emma, and I'll be honest, a thin day for verified deals and launches. We'd rather say so than invent something.
A: Agreed, George. What we do have is the data. AGF Management in Canada published its September figures yesterday, with total assets and fee earning assets of about seventy five billion dollars. A reminder that month end numbers from listed managers are coming, and markets will read them for flows.
B: And that's worth watching, because the third quarter ended with a sharp bond sell off. Managers with large fixed income books will have seen valuations fall, and equity heavy managers will have been helped by the tech rally. The next set of results will show who is winning.
A: In real estate, one bit of news, George. ING and DBS have underwritten a development loan of just over one billion pounds for the refurbishment of One Spitalfields, for investors advised by J.P. Morgan Asset Management. It's a sign that big ticket lending is still available for good assets, even with yields where they are.
A: Now, we've covered the Goldman Sachs and NEOS deal, and the wave of ETF launches, in recent days, and we've nothing to add this morning, so let's talk about what they mean in practice for operations.
B: Go on, Emma.
A: If your firm is launching an ETF, or converting a fund into one, the real work is operational. Share class set up, market maker agreements, pricing and net asset value feeds, creation and redemption processes, and custody and fund accounting. All of that has to be ready before launch day.
B: And if you're an acquirer or a target, integration is everything. Systems, suppliers, reporting lines, fund documents, even the policies you inherit. The first ninety days after a deal are mostly operations, so involve your COO early!
A: Then semi liquid funds. With yields at these levels, redemption requests in funds that hold illiquid assets tend to rise. A gate limits how much can be withdrawn at once, to protect remaining investors, and the question is whether yours would work in practice.
B: So test it, Emma. Who decides to gate? What data do they need? How fast can you notify investors and distributors? Those are operational questions, not just legal ones.
A: And a word on valuation. When rates move fast, assets that don't trade every day, such as private loans or property, can be priced with a lag. Regulators will want to see how you challenge those prices and how you manage conflicts.
B: We couldn't verify any fresh closures, senior hires or enforcement actions this morning, so we've left them out.
A: Which takes us to the part where we pull it together. Three things a COO should do something about today.
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B: Number one, Emma. Stress test liquidity and collateral against this week's yields. The ten year Treasury is above five percent, the thirty year gilt has touched six, and oil is swinging on headlines. Check margin, cash buffers and redemption scenarios, and confirm who is on call.
A: Number two: agree your plan for rate decisions and the budget. The Federal Reserve and the Chancellor on the twenty eighth of October, the European Central Bank on the twenty ninth, and the Bank of England on the fifth of November. Named decision makers for each.
B: Number three: pin down the regulatory calendar. Decide about the alternative fund managers response by the fourteenth of October, scope FRAME, and make sure someone owns the first of February liquidity deadline, the crypto gateway, T plus one and Form PF.
A: And now the diary for the week, George. Today, Tuesday the sixth of October, the FCA's Annual Public Meeting in Edinburgh, and the UK construction survey.
B: Wednesday the seventh, the minutes of the Federal Reserve's September meeting. Thursday the eighth, the European Central Bank's accounts of its last meeting. Friday the ninth, Chinese inflation data, Canadian jobs figures, and American consumer sentiment.
A: And a little further out, the fourteenth of October for the alternative fund managers consultation, then the Chancellor's budget and the Fed on the twenty eighth, the ECB on the twenty ninth, and the Bank of England on the fifth of November.
B: Big weeks ahead, Emma!
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 brilliant Tuesday! We'll be back tomorrow morning.