Economy

NEW YORK (Reuters) – Kenneth Leech, the former co-chief investment officer of Western Asset Management Co, was criminally charged on Monday with running a more than $600 million “cherry-picking” scheme in which he fraudulently favored some clients’ accounts over others when allocating trades.The U.S. Attorney’s office in Manhattan said Leech, 70, was indicted by a federal grand jury on four counts of fraud and one count of making false statements.Leech was the face of Western Asset Management, better known as Wamco, before being placed on leave in August when parent company Franklin Resources (NYSE:BEN) disclosed he was being investigated.Leech also faces related U.S. Securities and Exchange Commission civil charges. His lawyer called the charges “unfounded” and said Leech plans to defend himself vigorously.Authorities said the alleged scheme ran from January 2021 to October 2023, and involved placing trades and then waiting to see how they performed before allocating them to clients.”The scale and duration of Leech’s allegedly fraudulent conduct amounts to a shocking betrayal of his fiduciary obligations to his clients, who paid dearly for his transgressions,” Sanjay Wadhwa, acting director of the SEC enforcement division, said in a statement.San Mateo, California-based Franklin Resources was not charged.Clients pulled about $55 billion, or approximately 15% of Wamco’s assets under management, in the four months ending Oct. 31, with much of the outflows following Franklin’s disclosure of the investigation of Leech.Franklin had Wamco through its purchase of Legg Mason (NYSE:LM) in 2020.RUSSIA, CREDIT SUISSE DEBT LOSSESAuthorities said Leech improperly steered U.S. Treasury derivative trades that performed well on their first day to favored portfolios, while allocating worse-performing trades to other portfolios.Leech allegedly favored portfolios following a ” Macro (BCBA:BMAm) Opportunities” strategy, which he promoted as reflecting his best ideas, and breached his duties to investors in portfolios following “Core” and “Core Plus” strategies.According to the indictment, Leech became particularly attuned to supporting Macro Opportunities portfolios after they suffered big losses on Russian debt following Russia’s invasion of Ukraine in 2022, and on Credit Suisse debt when the Swiss bank collapsed in 2023.A mutual fund that Leech helped manage, Western Asset Core Plus Bond, has lagged at least 98% of its peers in the latest one-year and three-year periods, after largely outperforming since 2014, Morningstar data show.Prosecutors said Leech also lied to the SEC by testifying that he knew where he planned to allocate trades when he placed them.’UNBLEMISHED RECORD,’ LAWYER SAYSJonathan Sack, a lawyer for Leech, in a statement said the charges ignored key differences among fixed-income strategies and the “irrelevance” of first-day performance.”Ken Leech has an unblemished record over nearly 50 years as a trader and portfolio manager,” Sack said. “Mr. Leech received no benefit from the alleged misconduct. We are confident that he acted properly at all times.”Leech, of Pasadena, California, has until Dec. 6 to make an initial appearance in Manhattan federal court.The top criminal charges include investment adviser fraud and securities fraud, each of which carries a maximum 20-year prison term. Leech was also charged with commodity trading adviser fraud, commodities fraud and making false statements.On Nov. 4, Franklin said the U.S. Commodity Futures Trading Commission was also investigating the matter. Franklin also took a $389.2 million impairment charge for Wamco, leading to an overall quarterly loss.Wamco spokeswoman Jeaneen Terrio said the firm takes the matter “extremely seriously,” is continuing to cooperate with investigators, and has enhanced its trading policies and practices following an outside review.Shares of Franklin have fallen 24% this year, significantly underperforming the broader market.The criminal case is U.S. v. Leech, U.S. District Court, Southern District of New York, No. 24-cr-00658. More

The dollar rose over 2% against the Mexican peso and 1% against its Canadian counterpart.The dollar has been on the back foot in the past few days as U.S. Treasury markets cheered Trump’s pick of hedge fund manager Scott Bessent for U.S. Treasury secretary.”It’s almost as if Trump wants to remind markets who is in control, after nominating Scott Bessent as Treasury Sec – a man markets expected to cool Trump’s potency,” said Matt Simpson, senior market analyst at City Index.”But with the Canadian dollar rising against the Mexican Peso, markets are assuming this will hit Mexico the hardest.” While traders saw Bessent as an old Wall Street hand and fiscal conservative, he has also openly favoured a strong dollar and supported tariffs.The dollar index, which measures the U.S. currency against six rivals, was last at 107.37. The euro fell 0.6% to $1.043175, while sterling was last down 0.4% at $1.2516. The euro zone’s single currency had taken a hit on Friday as European manufacturing surveys showed broad weakness, while U.S. surveys surprised on the high side.On China, the president-elect said Beijing was not taking strong enough action to stop the flow of illicit drugs crossing the border into the U.S. from Mexico by curbing the export of drugmaking ingredients.”Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” Trump said in a social media post.China has previously denied the allegations.The Australian dollar fell 0.75% to $0.64555, while the New Zealand dollar touched a one-year low and was last at $0.58075. Turning to cryptocurrencies, bitcoin was trading at $93,577, well below the record high of $99,830 it touched over the weekend.Bitcoin met profit-taking ahead of the symbolic $100,000 barrier, having climbed more than 40% since the U.S. election earlier this month on expectations Trump will loosen the regulatory environment for cryptocurrencies. More

The announcement sparked a dollar rally. It rose 1% against the Canadian dollar and 2% against the Mexican peso, while U.S. stock futures and share markets in Asia fell. [FRX/][MKTS/GLOB]Here are reactions from market participants:ROB CARNELL, REGIONAL HEAD OF RESEARCH, ING, SINGAPORE”It reminds me a lot of four years ago, when you’d wake up every morning and markets would be whipped around by whatever the latest comment is. I’m tempted to take it with a bit of a pinch of salt. He’s not the president yet.”This is how he gets stuff done, isn’t it? He throws stuff around, mentions various numbers, markets react and maybe it happens maybe it doesn’t.”ALEX LOO, FX AND MACRO STRATEGIST, TD SECURITIES, SINGAPORE”While the USMCA agreement is technically only up for renegotiation in 2026, Trump is likely trying to kickstart the renewal process early with Canada and Mexico through today’s tariff announcements. MXN and CAD had a kneejerk reaction lower but thin liquidity outside North America time zone may have contributed to the outsized moves seen in Asia this morning.”SEAN CALLOW, SENIOR FX ANALYST, ITC (NS:ITC) MARKETS, SYDNEY”It was just last month that Trump said that ‘the most beautiful word in the dictionary is tariff’ so there really should not have been a surprise in Trump’s intention, just in the timing of the comments. “The fall in trade-sensitive currencies makes sense and should persist near term given the quiet calendar, but Fed policy should return to the fore once we get closer to the December FOMC meeting.”KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE”It looks like he’s not going to waste much time… so the question now is – on day 1 is he actually going to follow through with it and will the tariffs hit on day 1?”The other interesting thing is he’s laid out his reasons for the tariffs (relating to the movement of people and drugs) so it looks like these tariffs are conditional on those. Whilst this is the opening salvo, maybe this is just the beginning of the deals he’s well known for.”TONY SYCAMORE, MARKET ANALYST, IG MARKETS, SYDNEY”I’m just trying to reconcile how it works with the appointment of Bessent. People have been expecting him to be a more moderate voice. Maybe it’s also a reaction to hey, look, everyone thought that Bessent was gonna moderate some of those more extreme trade policies … but Trump’s not gonna be moderated by anyone.”He has said up to 60% on Chinese goods.. so if we’re only talking about an additional 10% tariff on Chinese goods on top of the existing levies, that’s a lot less than what he had previously indicated. .. so it may be actually less than the worst case scenario we were looking at.”MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE”It’s almost as if Trump wants to remind markets who is in control, after nominating Scott Bessent as Treasury Sec – a man markets expected to cool Trump’s potency. But with the Canadian dollar rising against the Mexican peso, markets are assuming this will hit Mexico the hardest.” More

TOKYO (Reuters) -A leading indicator of Japan’s service-sector inflation held steady near 3% in October, data showed on Tuesday, reinforcing the central bank’s view that rising wages are prodding more firms to pass on higher labour costs through price hikes.Service-sector inflation is being closely watched by the Bank of Japan for clues on whether demand-driven price gains are broadening enough to justify raising interest rates further.The data will be among factors the BOJ will scrutinise at its next policy meeting in December, when some analysts expect it to hike interest rates from the current 0.25%.The services producer price index, which measures the price companies charge each other for services, rose 2.9% in October from a year earlier, BOJ data showed, accelerating from a 2.8% gain in September.The increase was driven by rises in services ranging from machinery repair, accommodation and construction work, the data showed.BOJ Governor Kazuo Ueda has said the economy was progressing towards sustained wages-driven inflation that could allow the central bank to raise still-low rates again.”We’re seeing progress on the domestic front,” Ueda told a news conference last week, pointing to growing signs that wage hikes will continue and prod companies to raise prices not just for goods but services.Tuesday’s data followed consumer inflation figures released last week that showed the price companies charged households for services rose 1.5% in October from a year earlier, accelerating from a 1.3% gain in September.Inflation data for October is being closely watched as a sign of what may come as many Japanese firms typically charge prices for services biannually in April, which is the start of the fiscal year, and October.The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress towards durably achieving its 2% inflation target.Governor Ueda has said the BOJ will keep raising rates if inflation remains on track to stably hit 2% as it projects.Just over half of economists polled by Reuters expect the BOJ to raise rates again at its Dec. 18-19 meeting. More

“It’s still a reasonable consideration,” Kashkari said in a Bloomberg TV interview. “Right now, knowing what I know today, still considering a 25-basis-point cut in December – it’s a reasonable debate for us to have.”The Fed began cutting interest rates in September after gaining confidence that inflation would continue to fall, and in response to worries that high borrowing costs were slowing the job market too quickly. Since then inflation’s progress toward the Fed’s 2% goal appears to have slowed. After cutting rates again early this month Fed policymakers have openly puzzled over how much lower they should take the policy rate, now in the 4.75%-5.00% range. Kashkari told Bloomberg that he is trying to understand how much downward pressure borrowing costs are having on the economy, and where inflation is going. “I have some confidence that it’s gently trending down, and right now the labor market remains strong,” Kashkari said.Fed policymakers will get a fresh report on its targeted inflation gauge this Wednesday, and will have the latest monthly job-market readout and a report on consumer prices in hand before their next meeting, on Dec. 17-18. More

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Annual shop price deflation of 0.6% in the 12 months to November followed a 0.8% drop in the 12 months to October, the BRC said.Its measure of shop price inflation dropped between May 2023 and July this year after which it fell further into deflation, until now.”With significant price pressures on the horizon, November’s figures may signal the end of falling inflation,” Helen Dickinson, BRC’s chief executive, said. Official figures last week showed consumer price inflation rose to 2.3% in October, largely reflecting a surge in household energy prices.The Bank of England this month cut interest rates to 4.75% from 5% but said it was likely to move only gradually with further cuts. On Monday, BoE Deputy Governor Clare Lombardelli expressed concern about the risk of stronger price growth than forecast.The BRC’s Dickinson said prices would increase as stores pass on higher staffing costs including in finance minister Rachel Reeves’ budget last month. Reeves on Oct.30 announced a 25 billion-pound ($31.53 billion) rise in social security contributions by employers alongside a 6.7% uplift in the minimum wage.The BRC survey showed food inflation fell to 1.8% from 1.9% in October. Prices of non-food items fell by 1.8%, a less severe drop than October’s 2.1% decrease.A separate survey from British supermarket Asda on Monday said a drop in households’ disposable income and rising inflation could subdue Christmas spending. ($1 = 0.7930 pounds) More