By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar stumbled on Monday, surrendering earlier gains following unexpected oil output cuts from OPEC+, as data showed the U.S. economy continued to slow with declines in manufacturing and construction spending.

Data on Monday added to the narrative that the Federal Reserve is near the end of its rate-hike cycle.

An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, propelled oil prices higher. Brent crude last traded at $84.9 per barrel, up 5.7%. [O/R]

The dollar initially rose after the announcement.

OPEC+ was expected to stick to cuts of two million barrels per day (bpd) which were already in place until the end of 2023, but instead announced further output cuts of around 1.16 million bpd.

The OPEC impact, however, was short-lived, as investors focused on monetary policy and the divergence between the Federal Reserve and other central banks, particularly, the European Central Bank.

“Our working thesis is that we would probably see the peak in the U.S. dollar sometime toward mid-year,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

“That’s predicated on the view that peak inflation means peak Fed and that means peak U.S. dollar. But it’s quite possible that we may have seen that earlier than our forecast.”

Monday’s economic reports showed U.S. manufacturing activity in March slumped to its lowest level in nearly three years as new orders continued to contract. The Institute for Supply Management (ISM) said its manufacturing PMI fell to 46.3 last month, the lowest since May 2020, from 47.7 in February.

U.S. construction spending also weakened, down 0.1% in February after increasing 0.4% in January.

The dollar extended losses after Monday’s data.

On Monday, federal funds futures priced in a 65% chance of another 25 basis-point (bp) rate hike by the Fed in May. Futures traders have also factored in a pause in June and rate cuts by December.

In the euro zone, traders are pricing in around 60 basis points of further tightening by the ECB by the end of the year after data released on Friday showed an acceleration in core price growth in the euro area.

The euro was last up 0.6% at $1.0905, after touching a one-week low of $1.0788 earlier in the session.

“While it’s likely that the Fed is done or close to being done, we are going to see a little more tightening by the ECB. We therefore see euro/dollar hitting $1.10-$1.12 by the second half of the year,” Scotiabank’s Osborne said.

The dollar index, which measures the currency against a basket of six currencies including the euro, was down 0.9% at 102.01.

Focus this week will be on Friday’s U.S. jobs report, although many markets will be closed for the Easter holiday.

Against the Japanese currency, the dollar fell 0.3% to 132.44 yen, after earlier hitting its highest level since around mid-March.

Sterling firmed 0.8% at $1.2422, while the dollar dipped 0.% against the Swiss franc to 0.912 francs.

The risk-sensitive Australian dollar was last up 1.5% at US$0.6790 ahead of a Reserve Bank of Australia policy meeting on Tuesday. Markets have priced in an 85% chance the central bank will hold rates steady after 10 hikes. The Aussie dollar earlier hit a one-month high versus the greenback.

In cryptocurrencies, Dogecoin, a meme coin supported by Tesla Inc founder Elon Musk, soared 27% on Monday to $0.10 after Twitter’s webpage used the token’s dog icon instead of the social media website’s usual blue bird, market participants said.

========================================================

Currency bid prices at 3:58PM (1958 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.0200 102.9400 -0.88% -1.420% +103.0600 +101.9600

Euro/Dollar $1.0906 $1.0842 +0.59% +1.78% +$1.0917 +$1.0788

Dollar/Yen 132.4500 132.8100 -0.27% +1.02% +133.7500 +132.2100

Euro/Yen 144.45 143.97 +0.33% +2.96% +144.9400 +143.6400

Dollar/Swiss 0.9124 0.9152 -0.30% -1.32% +0.9195 +0.9117

Sterling/Dollar $1.2422 $1.2328 +0.77% +2.72% +$1.2423 +$1.2275

Dollar/Canadian 1.3418 1.3516 -0.72% -0.97% +1.3536 +1.3412

Aussie/Dollar $0.6789 $0.6687 +1.53% -0.40% +$0.6790 +$0.6652

Euro/Swiss 0.9950 0.9923 +0.27% +0.56% +0.9962 +0.9905

Euro/Sterling 0.8777 0.8791 -0.16% -0.76% +0.8806 +0.8772

NZ $0.6296 $0.6255 +0.72% -0.78% +$0.6300 +$0.6205

Dollar/Dollar

Dollar/Norway 10.2910 10.4740 -1.63% +4.98% +10.4860 +10.2930

Euro/Norway 11.2187 11.3442 -1.13% +6.91% +11.3189 +11.2127

Dollar/Sweden 10.3640 10.3761 +0.49% -0.42% +10.4416 +10.3556

Euro/Sweden 11.2952 11.2397 +0.49% +1.31% +11.3174 +11.2451

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Toby Chopra, Kirsten Donovan, Josie Kao and Richard Chang)

By Shariq Khan

BENGALURU (Reuters) – Oil benchmarks jumped 6% on Monday, the day after the OPEC+ group jolted markets with plans to cut more production, raising fears of tightening supplies while some warned of reduced demand if oil refiners flinch at paying higher prices for crude.

Brent crude settled higher by $5.04, or 6.3%, at $84.93 a barrel, after touching its highest since March 7 at $86.44. West Texas Intermediate crude settled up by $4.75, or 6.3%, at $80.42 a barrel after rising to a two-month high during the session.

The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, shook markets with Sunday’s announcement that it will lower its production target by a further 1.16 million barrels per day (bpd).

The latest pledges bring the total volume of cuts by OPEC+ to 3.66 million bpd including a 2 million barrel cut last October, according to Reuters calculations, equal to about 3.7% of global demand.

GRAPHIC: OPEC+ production cut effect on oil price https://www.reuters.com/graphics/GLOBAL-OIL/byprlmgxlpe/chart.png

U.S. President Joe Biden’s administration said it was given a “heads up” on the production cut and told Saudi officials that it disagreed with it.

OPEC had described the cuts as precautionary. Analysts said a weakening economy and rising oil stockpiles supported the decision. Last month, Brent prices had traded near $70 a barrel, a 15-month low, on fears of weakening demand.

Since mid-December, U.S. crude oil inventories have risen fairly steadily and hit their highest level in two years in the week ended March 17. Western sanctions on Russia also have led to a sizeable number of Russian crude cargoes looking for a home, Mizuho analyst Bob Yawger said.

Still, the OPEC+ production curbs led most analysts to raise their Brent oil price forecasts to around $100 per barrel by year-end. This in turn could prompt more aggressive interest rate hikes from central banks and gradually push economies closer to a recession, Yawger and others said.

U.S. manufacturing activity slumped to the lowest level in nearly three years in March and could decline further on tighter credit and higher borrowing costs.

The inflationary jolt to the world economy from rising oil prices will result in more rate hikes, said Fawad Razaqzada, Market Analyst at City Index.

“People will not stop driving or travelling by plane because of high oil prices. Therefore, demand is only likely to get hurt moderately by rising oil prices,” he said.

Long-term, however, demand for energy could slump if oil refiners lower activity to counter rising input costs. Lower refining output could push prices at the pump to near last year’s record $5 a gallon levels, Mizuho’s Yawger said.

The crack spread, or profit refiners make in converting crude oil to products, on Monday traded at its lowest since Feb. 24. The U.S. gasoline futures contract rose almost 8% to its highest since January and settled at $2.76 a gallon, up about 2.1%.

GRAPHIC: Brent crude price still lower year till date https://www.reuters.com/graphics/GLOBAL-OIL/dwpkdkxjjvm/chart.png

(Reporting by Shariq Khan; Additional reporting by Noah Browning, Mohi Narayan and Florence Tan; Editing by Kirsten Donovan, David Goodman, David Gregorio and Jonathan Oatis)

LONDON (Reuters) – OPEC and its allies, including Russia, agreed on Sunday to widen crude oil production cuts to 3.66 million barrels per day (bpd) or 3.7% of global demand.

The surprise announcement helped push up prices by $5 per barrel to above $85 per barrel.

Here are the main reasons why OPEC+ is cutting output:

CONCERNS ABOUT WEAK GLOBAL DEMAND

Saudi Arabia has said voluntary output cuts of 1.66 million bpd on top of the existing 2 million bpd cuts were made as a precautionary measure aimed at supporting market stability.

Russian deputy prime minister Alexander Novak said the Western banking crisis was one of the reasons behind the cut as well as “interference with market dynamics”, a Russian expression to describe a Western price cap on Russian oil.

Fears of a fresh banking crisis over the past month have led investors to sell out of risk assets such as commodities with oil prices falling to near $70 per barrel from near an all-time high of $139 in March 2022.

A global recession could lead to lower oil prices. Redburn research said the size of the latest cut was probably overdone unless OPEC feared a major global recession.

PUNISHING SPECULATORS

The cut will also punish oil short sellers or those who bet on oil price declines.

Back in 2020, Saudi Energy Minister Prince Abdulaziz bin Salman warned traders against betting heavily in the oil market, saying he would try to make the market jumpy and promising that those who gamble on the oil price would be “ouching like hell”.

Prior to the latest cut, hedge funds had reduced their net position in U.S. benchmark WTI oil to just 56 million barrels by March 21, the lowest since February 2016.

Their bullish long positions outnumbered bearish short ones by a ratio of just 1.39:1, the lowest since August 2016.

“The latest cut would hurt those who bet against oil really badly,” said a source familiar with OPEC+ thinking.

SEEKING HIGHER PRICES

Many analysts said OPEC+ was keen to put a floor under oil prices at $80 per barrel while UBS and Rystad predicted a jump back to $100.

However, excessively high oil prices represent a risk for OPEC+ as they speed up inflation, including for goods the group needs to purchase.

They also encourage speedier production gains from non-OPEC members and investments in alternative sources of energy.

Goldman Sachs said OPEC’s power has increased in recent years as U.S. shale responses to higher prices have become slower and smaller, in part because of pressure on investors to stop funding fossil fuel projects.

TENSIONS WITH WASHINGTON

Washington has called the latest move by OPEC+ inadvisable.

The West has repeatedly criticised OPEC for manipulating prices and siding with Russia despite the war in Ukraine.

The United States is considering passing legislation known as NOPEC, which would allow the seizure of OPEC’s assets on U.S. territory in the event market collusion is proved.

OPEC+ has criticised the International Energy Agency, the West’s energy watchdog in which the United States is the biggest financial donor, for releasing oil stocks last year, a move it said was necessary to bring down prices amid fears sanctions would disrupt Russian supply.

The IEA’s prediction never materialised though, prompting OPEC+ sources to say it was politically driven and designed to help boost U.S. President Joe Biden’s ratings.

The United States, which released most stocks, said it would buy back some oil in 2023 but later ruled it out.

JP Morgan and Goldman Sachs said the U.S. decision not to buy back oil for reserves might have contributed to the move to cut output.

(Reporting by OPEC Newsroom; Editing by Kirsten Donovan)

By Lucia Mutikani, Jonathan Cable and Leika Kihara

WASHINGTON/LONDON/TOKYO (Reuters) -Global factory activity weakened in March as consumers feeling the pinch from rising living costs cut back, surveys showed on Monday, suggesting a deteriorating outlook will remain a drag on economic recoveries and keep policymakers on their toes.

U.S. manufacturing activity slumped to the lowest level in nearly three years as new orders continued to contract, a survey by the Institute for Supply Management (ISM) showed.

Its manufacturing PMI fell to 46.3 last month, the lowest reading since May 2020, from 47.7 in February. Economists polled by Reuters had forecast the index dipping to 47.5.

It was the fifth straight month that the PMI remained below the 50 threshold, which indicates contraction in manufacturing. But so-called hard data have suggested that manufacturing, which accounts for 11.3% of the economy, continues to grow moderately.

Rising borrowing costs as the Federal Reserve fights high inflation have cooled demand for goods, which are typically bought on credit. Demand could also come under further pressure following the recent failure of two U.S. regional banks and the takeover of Credit Suisse, which stressed the financial sector.

“While an onshoring of supply networks and investment in domestic manufacturing capacity could provide support to factory activity, a further tightening in credit conditions may be a hurdle going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

The U.S. central bank is expected to pause its tightening cycle soon, but the outlook remains clouded by the banking-sector troubles, still-high inflation and slowing global growth with market turbulence shedding light on potential vulnerabilities in the world financial system.

The ISM’s survey did, however, also show work backlogs continued to shrink last month, reflecting the drop in demand as well as improved supply chains.

With supply improving, inflation at the factory gate retreated. The ISM survey’s measure of prices paid by manufacturers dropped to 49.2 from 51.3 in February.

But oil prices surged on Monday, posting the biggest daily rise in nearly a year, after a surprise announcement by OPEC+ on Sunday to cut more production, likely adding to inflationary pressures.

MIXED MOOD IN EURO ZONE

In the euro zone, factories across the bloc also saw a further decline last month, although there too the cost of manufacturing fell for the first time since mid-2020.

S&P Global’s final euro zone manufacturing Purchasing Managers’ Index (PMI) fell to 47.3 in March from February’s 48.5, just ahead of a preliminary reading of 47.1 but below the 50 mark for a ninth month.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, did however rise to a 10-month high of 50.4 from 50.1.

“Today’s PMI results highlight that challenges remain for manufacturing companies. Although consumer demand has largely held across sectors, this could lessen gradually,” said Thomas Rinn, global industrial lead at Accenture.

German manufacturing activity shrank in March at the fastest pace in almost three years, while weak demand continued to drag down France’s factory sector as purchasing managers turned pessimistic about the 12-month outlook for their businesses.

In Britain, outside the European Union, manufacturers also slipped, but did turn more optimistic about the future as cost pressures and supply chain problems eased.

The improving supply chains and lower energy costs meant input prices fell in the euro zone for the first time since July 2020 – just when the COVID-19 pandemic was cementing its grip.

ASIAN STRAIN

While supply disruptions caused by the pandemic have mostly run their course, weak chip demand and fresh signs of slowdown in global growth have emerged as risks to many Asian economies.

Export-reliant Japan and South Korea both saw manufacturing activity contract in March while growth in China stalled, highlighting the challenge facing Asia as authorities try to keep inflation in check and fend off headwinds from faltering global demand.

“With global growth set to remain weak in the coming quarters, we expect manufacturing output in Asia to remain under pressure,” said Shivaan Tandon, emerging Asia economist at Capital Economics.

China’s Caixin/S&P Global manufacturing PMI stood at 50.0 in March, much lower than market forecasts of 51.7 and below February’s 51.6. The reading echoed slower growth in an official PMI released on Friday.

“The foundation for economic recovery is not yet solid… economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption,” Wang Zhe, senior economist at Caixin Insight Group, said on China’s PMI.

South Korea’s PMI fell to 47.6 in March from 48.5 in February, its weakest in six months as export orders took a hit.

Japan’s final au Jibun Bank PMI stood at 49.2 in March, up from February’s 47.7 but remaining below the 50-threshold, as new orders contracted for a ninth-consecutive month.

A separate central bank survey released on Monday showed Japanese big manufacturers’ sentiment soured in January-March to its worst in more than two years, as weak external demand added to the struggle for firms already grappling with rising raw material costs.

India was a rare bright spot in the region, with its manufacturing sector expanding at its quickest pace in three months in March on improved output and new orders, suggesting its economy is better placed than most of its peers to weather a global slowdown.

Vietnam and Malaysia saw factory activity shrink in March, while that of the Philippines expanded at a slower pace than in February, surveys showed.

(Reporting by Lucia Mutikani, Jonathan Cable and Leika Kihara; Writing by Lindsay Dunsmuir; Editing by Shri Navaratnam, Sharon Singleton and Chizu Nomiyama)

By Supantha Mukherjee, Elvira Pollina and Rachel More

STOCKHOLM/MILAN/BERLIN (Reuters) -Italy’s move to temporarily ban ChatGPT has inspired other European countries to study if harsher measures are needed to rein in the wildly popular chatbots and whether to coordinate such actions.

While European parliamentarians disagree over the content and reach of the EU AI Act, some regulators are finding that existing tools, such as the General Data Protection Regulation (GDPR) that gives users control over their personal information, can apply to the rapidly emerging category of generative AI companies.

Generative AI, such as OpenAI’s ChatGPT, relies on algorithms to generate remarkably human responses to text queries based on analyzing large volumes of data, some of which may be owned by internet users. 

The Italian agency, also known as Garante, accused Microsoft Corp-backed OpenAI of failing to check the age of ChatGPT users and the “absence of any legal basis that justifies the massive collection and storage of personal data” to “train” the chatbot.

“The points they raise are fundamental and show that GDPR does offer tools for the regulators to be involved and engaged into shaping the future of AI,” said Dessislava Savova, partner at law firm Clifford Chance.

Privacy regulators in France and Ireland have reached out to counterparts in Italy to find out more about the basis of the ban. Germany could follow in Italy’s footsteps by blocking ChatGPT over data security concerns, the German commissioner for data protection told the Handelsblatt newspaper.

“We are following up with the Italian regulator,” said a spokesperson for Ireland’s Data Protection Commissioner. “We will coordinate with all EU data protection authorities in relation to this matter.”

The privacy regulator in Sweden, however, said it had no plan to ban ChatGPT nor was it in contact with the Italian watchdog. Spain’s regulator said it had not received any complaint about ChatGPT but did not rule out a future investigation.

Italy’s Garante, like other privacy regulators, is independent of the government and was also among the first to formally warn Chinese-owned TikTok about breaching of existing European Union privacy rules.

While the privacy commissioners favour more regulation, the governments are more lenient.

Italy’s deputy prime minister has criticized its own regulator’s decision by calling it “excessive” and a German government spokesman said a ban of ChatGPT would not be necessary.

The Italian authority’s move last week was aimed at starting a dialogue with the company to address the issues raised over ChatGPT’s compliance to EU data protection rules and not to ban the tool, a source familiar with the matter said.

OpenAI has not responded to regulators over the weekend the source said. Meanwhile, OpenAI has taken ChatGPT offline in Italy on Friday. It did not respond to questions about other European regulators looking into potential violation in their countries.

It has no offices in the European Union.

OpenAI, whose artificial intelligence platform took the world by storm after its launch in November, said on Friday it actively works to reduce personal data in training its AI systems.

The Italian investigation into OpenAI was launched after a nine-hour cyber security breach last month led to people being shown excerpts of other users’ ChatGPT conversations and their financial information.

Italy is the first Western country to take action against a chatbot powered by artificial intelligence.

While the Italian regulator has only singled out ChatGPT so far because of its popularity, other AI platforms such as Google Inc’s Bard might be questioned too, several experts said.

“Unlike ChatGPT, Google is more likely to have taken that into account already because of its history in Europe and because of the size of the organization,” Savova said.

(Reporting by Rachel More in Berlin, Padraic Halpin in Dublin, Tassilo Hummel in Paris, Supantha Mukherjee in Stockholm, Elvira Pollina in Milan and Emma-Victoria Farr in FrankfurtEditing by Matthias Williams, David Goodman, Kenneth Li and Richard Chang)

ROME (Reuters) – Italy’s deputy prime minister on Sunday criticised a decision by the government’s Data Protection Authority to temporarily ban chatbot ChatGPT, saying the block over privacy concerns seemed excessive.

Microsoft-backed OpenAI took ChatGPT offline in Italy on Friday after the national data agency raised concerns over possible privacy violations and for failing to verify that users were aged 13 or above, as it had requested.

The move by the agency, which is independent from the government, made Italy the first Western country to take action against a chatbot powered by artificial intelligence.

“I find the decision of the Privacy Watchdog that forced #ChatGPT to prevent access from Italy disproportionate,” Matteo Salvini, who is leader of the ruling coalition League party, wrote on Instagram.

Salvini, who also serves as transport minister, said the regulator’s move was “hypocritical” and that common sense was needed as “privacy issues concern practically all online services”.

Italy’s Data Protection Authority declined to comment on Salvini’s post.

Since its release last year, ChatGPT has set off a tech craze, prompting rivals to launch similar products and companies to integrate it or similar technologies into their apps and products.

OpenAI, which disabled ChatGPT for users in Italy on the back of the agency’s request, said on Friday it actively works to reduce the use of personal data in training its AI systems like ChatGPT.

“We look forward to working closely with (the Italian data agency) and educating them on how our systems are built and used,” it said.

The ban could harm national business and innovation, Salvini said, adding that he hoped for a rapid solution to be found and for the chatbot’s access to Italy to be restored.

“Every technological revolution brings great changes, risks and opportunities. It is right to control and regulate through an international cooperation between regulators and legislators, but it cannot be blocked,” he said.

(Reporting by Federico Maccioni and Elvria Pollina; Editing by Crispian Balmer and Philippa Fletcher)

(Reuters) – Rivian Automotive Inc maintained its annual forecast on Monday as the electric-vehicle maker scrambles to lift output in an industry under pressure from an uncertain economy and a price war started by Tesla Inc.

Shares of Rivian, whose backers include Amazon.com Inc, fell 2.4% in a broad decline for EV stocks that saw Tesla fall 6.3% after its own production report.

Rivian made 9,395 vehicles in the first quarter ended March, a drop of more than 6% from the previous three months. Deliveries also dipped over 1% from the prior quarter to 7,946 vehicles.

Output took a hit from supply-chain issues and a scheduled stop in the company’s commercial production line for most of the quarter to introduce new technologies, including lithium iron phosphate (LFP) battery packs.

“We consider the numbers a significant disappointment,” said CFRA Research analyst Garrett Nelson, who downgraded the stock to “strong sell” from “sell”.

“The report likely indicates that Rivian has continued to burn through cash at an alarming rate and is nowhere near generating even a gross profit, much less a net profit.”

Still, the EV maker reiterated its annual production target of 50,000.

CFO Claire McDonough said in February that Rivian expects much of the output to come in the second half due to supply constraints and the planned downtime in the first quarter.

GRAPHIC: Rivian’s quarterly production slips in Q1 https://www.reuters.com/graphics/RIVIAN-PRODUCTION/lbvggjkkqvq/chart_eikon.jpg

The money-losing startup is also caught in a price war triggered by Elon Musk’s Tesla, and analysts said it faces competition from the likes of Ford Motor Co’s F150 Lightning, Chevrolet’s Silverado and the GMC Hummer. 

“Certainly more competition will be a headwind to orders,” said D.A. Davidson analyst Michael Shlisky.

Tesla on Sunday posted record quarterly vehicle deliveries, but quarter-on-quarter sales growth was modest despite the price cuts as rising competition and a bleak economic outlook weighed.

(Reporting by Chavi Mehta in Bengaluru; Additional reporting by Akash Sriram; Editing by Rashmi Aich and Shounak Dasgupta)