Investors cash in bond market profits but grow more gloomy about UK

Equity funds saw their first monthly outflows in September since October 2023, according to the latest Fund Flow Index from Calastone. Investors pulled a net £564m from their holdings, ending a 10-month stint of near record-breaking inflows.

Outflows were, however, very concentrated. Investors were especially negative on UK-focused equity funds, selling down £666m, while equity income funds, a sector with large UK-equity weightings, shed £416m. Specialist sector funds also saw outflows accelerate to a record £512m, with gold funds and green funds seeing the most significant impact.

Beyond the UK, all other major geographically focused fund sectors saw inflows in September, though in every case these were lower than August and lower than their monthly averages over the last year. European equity funds saw the biggest drop in inflows, down to just £43m, compared to the £249m monthly average over the previous twelve months. Global equity and US equity funds were the most popular, absorbing £422m and £413m respectively.

“Global markets had a rocky start to September but finished the month in positive territory,” said Edward Glyn, head of global markets at Calastone. “There is clearly growing caution about growth – the sharp drop in inflows to European funds accompanies a slew of negative news coming from the Eurozone. The UK top 100 index ended the month a touch lower, while UK small and mid-cap indices were flat. The new government’s rather pessimistic commentary about the UK economy appears to have put a stop to the nascent revival in interest in domestic equities that we first detected in trading data in July. UK-focused funds seem to be off the menu for investors for the time-being.”

Fixed income funds saw the largest outflows, with selling concentrated in the first few days of the month ahead of rate decisions by the ECB, Federal Reserve and Bank of England. Since the beginning of August, Calastone has seen the biggest outflows from fixed income funds on its 10-year record, except for during the flash crash at the outset of the pandemic in April 2020. After £516m of outflows in August, September saw investors cash in a further £769m of their fixed income fund holdings.

Safe-haven money market funds were the main beneficiary of capital leaving fixed income funds. Investor added £383m to their holdings in September following strong buying in August (£593m).

“Bond markets have rallied strongly over the last six months with yields plummeting as investors watched economies cool around the world and priced in the likelihood of falling interest rates (falling yields mean higher bond prices),” Glyn explained. “Expectations ran high that the US Federal Reserve would cut rates by half a percentage point in mid-September – which it duly delivered – so investors seemingly followed the adage ‘buy the rumour, sell the news’ and banked their gains.”

 

Global banks to use Swift to trial live digital asset transactions from 2025 

Central and commercial banks will be able to use the Swift network to carry out trial transactions of digital currencies and assets, in expansive pilots that seek to demonstrate the cooperative’s ability to facilitate the flow of all kinds of value between more than four billion accounts across 200 countries and territories. 

Swift has already successfully demonstrated that it can transfer tokenised value across public and private blockchains, interlink central bank digital currencies (CBDCs) globally, and integrate multiple digital asset and cash networks. The new trials will explore how Swift can provide its community of financial institutions with a single window of access to multiple digital asset classes and currencies – paving the way for their seamless integration into the wider financial system. Initial use cases will focus on payments, FX, securities, and trade, to enable multi-ledger Delivery-versus-Payment (DvP) and Payment-versus-Payment (PvP) transactions.

Latest industry figures show that 134 countries are currently exploring CBDCs, and the tokenised asset market is projected to reach $16 trillion by 2030 . But the rapid growth of unconnected platforms and technologies has led to an increasingly fragmented landscape, creating a complex web of 'digital islands’ that presents a significant barrier to global adoption. Swift’s trials will leverage its unique position at the heart of the financial system to interlink these disparate networks with each other as well as with existing fiat currencies, enabling its global community to seamlessly transact using digital assets and currencies alongside traditional forms of value, using their existing infrastructure. 

Earlier this month, Swift was named as a participant in Project Agorá, a Bank for International Settlements-led project exploring the integration of tokenised commercial bank deposits and tokenised wholesale CBDCs on a unified platform.

“For digital assets and currencies to succeed on a global scale, it’s critical that they can seamlessly coexist with traditional forms of money,” said Tom Zschach, Chief Innovation Officer, Swift. “With Swift’s vast global reach we are uniquely positioned to bridge both emerging and established forms of value, and we’re now focused on demonstrating this in real-world, mainstream applications. As new forms of value emerge, our intention is to continue offering our community the ability to seamlessly make and track transactions of all kinds of assets - using the same secure and resilient infrastructure that is integral to their operations today." 

 

US election could be a turning point for crypto market structure

Crypto is playing a bigger role in the US presidential election than ever before and is having an outsized influence on candidate fundraising, according to a blog published by Coalition Greenwich, written by David Easthope, CFA, senior analyst and head of fintech research on the company’s Market Structure and Technology group.

For instance, single-issue crypto PACs like Fairshake are supporting leaders who would enable crypto and blockchain technology, with Fairshake alone having raised over $200m as of September month-end. Also, Howard Lutnick, CEO of Cantor Fitzgerald and well-known Bitcoin supporter, has assumed a leading profile with the Trump campaign and been named as the co-chair of the Trump transition team.

Easthope notes that there has also been policy engagement by the Harris campaign, with crypto becoming somewhat more of a bipartisan topic—especially now that there are donations to be raised and policies to be shaped. The influence of the people and cash coming out of Silicon Valley broadly and crypto more specifically can’t be ignored.

From a market structure perspective, much hangs in the balance around this election, Easthope posits. It’s not only the potential regulatory environment but also the legislative agenda—particularly as the Chevron deference standard was weakened in the courts, making Congressional action more necessary.

Whereas in the past, courts could defer to the views of regulators on matters they have previously examined, the 2024 ruling states this is no longer the case, thus removing some powers from those regulators. For instance, the decision could impact the SEC’s regulatory and enforcement agendas by providing a new path to challenge the SEC’s authority in digital assets (and other areas where the agenda was more ambitious), including SAB 121.

For crypto, the SEC is the clear “elephant in the room” on the regulatory front, Easthope writes, with enforcement actions driving the US’s crypto agenda over the past several years. Chairman Gensler’s current appointment goes through 2026, but a Trump presidency would likely mean a new Chairman. The SEC staggers the appointment of its five commissioners, however, so the election will not change the composition of the SEC overnight.

It is often said that personnel is policy, but personnel at the SEC and other agencies like the CFTC will need Senate confirmation. Therefore, the complexion of the US Senate is also impactful for who ends up staffing the agencies and regulating crypto. The biggest items being watched by the industry, according to Easthope, are the following:

1. Market structure, and the definitions and roles of custodians of digital assets, exchanges and brokers in the US ecosystem.

2. Stablecoins, where there is a desire and agenda to legislate.

3. Tokenisation, where the real-world assets are being tokenized under different jurisdictions but where the US has lagged international markets, including for regulated securities.

Easthope’s full thoughts are available on the Coalition Greenwich website.

 

HSBC and Tradeshift launch embedded finance venture

HSBC has launched its new jointly owned venture, SemFi by HSBC, which aims to deliver Seamless Embedded Finance solutions to business clients. The new technology company is a joint venture between HSBC and B2B global trade network Tradeshift. SemFi will embed HSBC payment, trade and financing solutions across a range of e-commerce and marketplace venues, including Tradeshift’s own B2B network.

SemFi will deliver its solutions in the UK to begin with, enabling SME suppliers on e-commerce venues to access digital invoice financing from HSBC, through a seamless experience. It also aims to offer SMEs greater flexibility and security in their spend management through HSBC virtual card solutions.

The new venture is led by senior leadership drawn from HSBC, including Vinay Mendonca as Chief Executive Officer (CEO) and Shehan Silva as Chief Operating Officer (COO). Vinay will be accountable to Jo Miyake, Interim CEO of Global Commercial Banking at HSBC, who joins the SemFi board.

“Businesses are increasingly looking for seamless financial solutions that are embedded within their e-commerce journeys, so they can access these when and where they need them,” said Vinay Mendonca, Chief Executive Officer of SemFi by HSBC. “SemFi by HSBC aims to deliver such embedded capabilities to help businesses grow. It will seek to bring the best of both worlds to our business customers and e-commerce partners; a startup technology mindset coupled with the global scale and expertise, of an international bank.”

 

PNC Bank aims to provide more secure, transparent data access for corporates

PNC Bank and Akoya have announced the expansion of their existing integration to support corporate data sharing through the Akoya data access network. This feature is designed to enhance the ability of corporate clients to securely share their financial data with third parties, including fintechs and data aggregators, that power platforms they use to run their businesses, enhancing security and reliability through API-based connections.

"By expanding our relationship with Akoya, we are advancing our commitment to secure, transparent, and controlled financial data sharing for the benefit of our corporate clients," said Emma Loftus, head of PNC Treasury Management. "Securely sharing sensitive financial information between platforms can streamline our clients' day-to-day operations, including critical business functions, such as reconciliation and cash forecasting.”

Through Akoya, PNC's corporate clients can authorise the sharing of their financial data directly within PNC's corporate online banking platform, PINACLE, by using their existing credentials and entitlements for the platform. Clients can also monitor activity and revoke access to their financial data, if needed, which further safeguards their businesses.

Akoya's platform is designed to transition financial services to API-based data access, thereby improving data-sharing reliability and reducing cybersecurity risks. Akoya does not copy or store any data, ensuring maximum privacy and security for users. The API utilised is based on the Financial Data Exchange (FDX) API standard which was recently expanded to include corporate data.