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Oil prices fell slightly on Friday and were set to close the week lower as concerns over rising U.S. interest rates and a strong dollar largely offset optimism over a potential recovery in Chinese demand.

U.S. producer price index inflation read higher than expected for January, coming on the heels of a red-hot consumer price index report that indicated that inflation will likely remain stubborn in the world's largest economy.

The readings, coupled with hawkish overnight comments from Federal Reserve officials, pointed to more interest rate hikes in the coming months - which markets fear could stymie economic growth this year and weigh on crude demand.

Brent oil futures fell 0.1% to $84.55 a barrel, while West Texas Intermediate crude futures fell 0.7% to $77.97 a barrel by 21:13 ET (02:13 GMT). Both contracts were set to lose between 1.5% and 2% this week.

The dollar surged overnight as Fed officials James Bullard and Loretta Mester
Fed officials say more rate hikes key to reducing inflation
By Reuters - Feb 16, 2023 11
By Michael S. Derby and Howard Schneider (Reuters) - Two Federal Reserve officials said on Thursday...

both talked up more interest rate hikes by the central bank, which in turn weighed on crude prices. Strength in the dollar makes crude more expensive for international buyers, denting global oil demand.

Oil prices were also dented earlier this week by the Biden Administration’s planned sale of 26 million barrels of crude from the Strategic Petroleum Reserve. This, coupled with data showing a substantially bigger-than-expected build in U.S. crude inventories, pointed to a potential U.S. supply glut in the near-term.

The negative supply and monetary policy cues largely offset optimism over a recovery in Chinese demand, which had offered crude prices some respite this week. Oil markets saw volatile swings in recent sessions as markets weighed a more positive demand outlook against signs of near-term strife.

Both the Organization of Petroleum Exporting Countries and the International Energy Agency hiked their demand forecasts for the year, with a recovery in China set to drive over 50% of oil demand this year.

China also outlined additional spending measures this week, as it moves to shore up economic growth after three years of COVID lockdowns.

But economic data from China has been somewhat middling, even after the country relaxed most anti-COVID measures earlier this year. Oil bulls are now holding out for more consistent signs of an economic recovery in the world’s largest oil importer.

The U.S. dollar surged to a six-week high in early European trade Friday, after strong U.S. economic data and hawkish comments from Federal Reserve policymakers pointed to more interest rate hikes.

At 02:00 ET (07:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher at 104.345, on track for a third consecutive week of gains.

Data released Thursday pointed to a resilient U.S. economy, as the number of Americans filing for unemployment benefits declined unexpectedly last week, while producer prices accelerated in January.

This followed on from retail sales rebounding sharply in January after two straight monthly declines and consumer inflation coming in stronger than expected earlier in the week.

“The data provides ammunition for the Fed to remain in hawkish mode and for the market to continue to price two to three more 25bp Fed rate hikes by the summer,” said analysts at ING, in a note.

The apparent strength of the U.S. economy has seemingly provided room for the Federal Reserve to continue its campaign against inflation with more aggressive interest rate hikes.

Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting such an increase in March, rather than a quarter point.

Bullard added that a Fed policy rate in the range of 5.25% to 5.5% would be adequate to cool the pace of price increases - above the 5% to 5.25% rate suggested by the Fed policymakers as of December.

This hawkish stance has pushed benchmark 10-Year Treasury yields to their highest levels since late December.

Elsewhere, EUR/USD fell 0.3% to 1.0633, feeling the impact of the surging dollar, trading at its lowest since Jan. 9.

European Central Bank Chief Economist Phillip Lane took something of a dovish stance on Thursday, saying that much of the impact on inflation of the recent increases in borrowing costs is yet to be felt.

GBP/USD fell 0.4% to 1.1941, falling to a six-week low, after U.K. retail sales rose 0.5% on the month in January, stronger than the expected drop of 0.3%.

USD/JPY rose 0.6% to 134.74, climbing to its highest level since late December, with the yen pressured by the rise in U.S. yields.

There remains a great deal of uncertainty over the path of monetary policy under new Bank of Japan Governor Kazuo Ueda, who is due to be confirmed in the post next week.

Ueda faces the daunting task of steering the Japanese economy through rising inflation and weakening economic growth.

The risk-sensitive AUD/USD fell 0.5% to 0.6842, near a one-month low, while USD/CNY rose 0.2% to 6.8765, despite China's top leaders declaring a "decisive victory" over COVID-19.

Glencore (OTC:GLNCY) announced a payout of $7.1 billion to its investors on Wednesday, including a new $1.5 billion share buyback programme, after the company posted a record 2022 trading profit thanks to strong oil and coal prices.

The miner's trading division reported an adjusted operating profit of $6.4 billion for 2022, up 73% from the previous year.

The U.S. dollar climbed higher in early European trade Wednesday after U.S. consumer inflation remained elevated in January, while sterling fell after a drop in the U.K. CPI rate.

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 103.457.

Headline U.S. consumer inflation came in at 6.4% year-on-year for January, higher than the 6.2% economists had expected, while the widely-watched year-on-year core figure, which takes out volatile items like energy and food, came in at 5.6%, ahead of the predicted 5.5%.

These figures suggest that inflation is proving difficult to tame, even after a series of interest rate hikes, opening up the likelihood that the Federal Reserve will see a higher end point for these increases than the market had originally envisioned.

New York Federal Reserve President John Williams noted late Tuesday that inflation remains too high, despite some moderation in recent months, implying more hikes would be needed.

"Our work is not yet done," he said, adding that "we will stay the course until our job is done."

U.S. retail sales figures are due later in the session and will provide clues as to how the U.S. consumer is bearing up after the series of Fed rate hikes in the past year.

Elsewhere, GBP/USD fell 0.6% to 1.2094 after the annual headline rate of U.K. inflation came in at 10.1% in January, a drop from 10.5% last month. While this was a larger fall than expected, and the third month in a row that it has retreated, it remains more than five times the Bank of England's 2% target.

EUR/USD fell 0.2% to 1.0709, with the euro caught up in the dollar buying ahead of a speech by European Central Bank President Christine Lagarde.

Lagarde stated last month that the ECB will keep raising interest rates quickly to slow inflation which remained far too high, and traders will be looking to see whether she has toned down this sentiment.

USD/JPY rose 0.2% to 133.32, with traders still trying to digest the nomination of Kazuo Ueda, an academic, to be the next governor of the Bank of Japan, while the risk-sensitive AUD/USD fell 1% to 0.691372.

Near-term cyclical impacts create an attractive entry point into Microsoft (NASDAQ:MSFT), Morgan Stanley analysts said on Monday.

The analysts, who have an Overweight rating and a $307 price target on Microsoft shares, also said there is more to like about the tech giant than AI.

"Easing compares, price increases, waning FX headwinds and decelerating opex all work to accelerate EPS growth to double digits by Q4, with accelerating EPS growth in each of the next five quarters," explained the analysts.

They believe this dynamic should bring investors back to Microsoft, given its strong stock performance is "historically aligned to EPS growth and a broader market backdrop where earnings outside of software look to be coming under increasing pressure."

"While cloud margins are likely to peak at ~72%+ this fiscal year, we estimate total company gross margins can still expand further from current levels and approach 70% over-time," the analysts also wrote.

They stated that the firm expects a quick return to double-digit EPS growth by Q4 for Microsoft, with "accelerating EPS growth in each of the next five quarters."

Shares of Teradata Corp (NYSE:TDC) are trading up over 6% in pre-open Monday after the company reported fourth-quarter results that beat the average analyst estimate.

Teradata posted an EPS of $0.35 on revenue of $452 million, beating the consensus for an EPS of $0.30 on revenue of $436.4M. While revenue fell almost 5% year-over-year, the company reported annual recurring revenue (ARR) of $1.48 billion, down just 1% YoY. For the fourth quarter, recurring revenue came in at $357M, an increase of 77% YoY and better than the $341.5M consensus.

“Teradata had a strong 2022, including achieving our largest quarter of cloud growth ever, and meeting or beating every element of our annual outlook,” said Steve McMillan, President and CEO, Teradata.

“It was only in the middle of 2020 that we set our sights on our cloud-first future. In that short amount of time, and despite challenging macroeconomic factors, Teradata delivered more than a six-fold growth in cloud ARR.”

For this quarter, the company projects EPS of $0.62 (up or down $0.02), ahead of the consensus of $0.57. For 2023, EPS is seen at $1.98 at the midpoint of the guidance on revenue growth of 1-4%. Annual recurring revenue is expected to increase by 6-8%.

“We remain on-track to achieve over one billion dollars of cloud ARR in 2025 while driving future margin expansion and free cash flow growth,” said Claire Bramley, Chief Financial Officer, Teradata.

A recent rise in Canada's shareholder activism faces a reality check next month when a new law that gives more powers to investors to pick board nominees will be put to the test and could spur more campaigns this year, lawyers say.

Canada is a perfect environment for activists with advantageous regulatory rules, but has failed to attract huge swathes of activists to its shores.

The country has lagged the rising trend of activism seen globally, but that could be about to change, lawyers say. Some 53 Canadian companies faced activism campaigns in 2022, a 17.8% rise over the previous year, compared with a 10.6% rise in the U.S to 511, showed data from Insightia, a Diligent brand.

Last August, Canada changed federal laws allowing investors to vote 'for' or 'against' each director nominated to a company board. Previously, shareholders could only vote 'for' a candidate or 'withhold' their vote, meaning a majority was not legally a necessity.

While not enshrined in law, majority voting was often adopted by companies in their policy, prior to the change. But directors previously faced no legal requirement to resign if they did not secure a majority of 'for' votes, said lawyers.

"If I were an activist, this makes things easier," said Heidi Reinhart, partner at Norton Rose Fulbright.

Reinhart said if an investor now calls for an 'against' campaign and secures enough votes, the person doesn't get elected. "So, I think there will be more targeted campaigns against specific directors. That gives some leverage to a shareholder," Reinhart added.

While the rule change came in August, lawyers point out this is the first proxy season where the amendment will be tested.

Next month, in activist campaigns from Luxor Capital Group and Sandpiper Group against Ritchie Bros (NYSE:RBA) Auctioneers and First Capital Real Estate Investment Trust (REIT) , respectively, both will face the scrutiny of fellow investors.

Luxor is opposing Ritchie Bros' $6 billion acquisition of IAA (NYSE:IAA) Inc while Sandpiper is aiming to overhaul First Capital REIT's board.

Activist hedge funds are likely to be further emboldened after bets on M&A deals globally landed them an outsized 8.5% gain in January, making them the best-performing strategy for the month, after losing 17.23% on average in 2022, showed data from Hedge Fund Research.

When it comes to wins and losses, however, only 22% of public activist demands in Canada were at least partially satisfied in 2022, lower than 26% in the U.S. and 34.1% in Europe, according to Insightia.

Canadian campaigns were more successful in the preceding four years, with a rate of 34% in 2021 and 43% in 2018.

A pick up in activism is expected to not only increase transparency on deals, but drive stock performance.

In the case of Elliott Investment Management calling for a strategic review and board changes at Suncor Energy (NYSE:SU) Inc, for example, the stock has risen 56% since the activist first announced its involvement in April.

By contrast, Canadian energy stocks rose 3.14% over the same period.

And oil and mining companies could continue to be the sector that faces activism, say market participants.

"There are a lot of resource companies and those sectors are often face dislocation and they're often people that are facing challenges in their business," said Adam Givertz, partner at law firm Paul Weiss.

"Those challenges, if they're a good company, can attract the attention of an activist."

In some of the biggest M&A headlines that you may have missed on InvestingPro this past week, CVS agreed to buy Oak Street Health, while Public Storage launched a hostile bid for its rival. Start your free 7-day trial of InvestingPro for rapid-fire, comprehensive coverage of market-moving analyst calls. And here is your full Pro Recap for the week.

Oak Street Health surges on $10.6B CVS Health acquisition announcement
CVS Health (NYSE:CVS) confirmed it has reached an agreement to acquire Oak Street Health (NYSE:OSH) for $39 per share in cash, which amounts to an enterprise value of approximately $10.6B and an equity value of roughly $9.47B.

The news of the impending deal was reported by the Wall Street Journal days earlier, causing Oak Street Health stock to increase by nearly 30% on Tuesday, with an additional 4% rise seen on Wednesday.

Oak Street Health shares surged more than 32% this week, while CVS Health was up more than 4%.

Life Storage shares surge on $11B Public Storage takeout offer
Life Storage (NYSE:LSI) stock surged more than 11% on Monday after it received an $11B unsolicited bid to be acquired by Public Storage (NYSE:PSA) in an all-stock deal, with Life Storage shareholders set to receive 0.4192 shares of Public Storage common stock for each share they own.

The proposed deal, including debt, values Life Storage at $15B, which would make it one of 2023's largest takeovers to date.

Joe Russell, CEO of Public Storage, expressed disappointment over what he characterized as Life Storage's refusal to "engage constructively" with the company. Life Storage's board rejected two takeover bids, one in December and one on January 31. Public Storage hopes that making the takeover attempts public will bring Life Storage's board to the negotiating table.

Public Storage also hiked its dividend by 50% to $3.00 per share, or $12 annualized, for an annual yield of 3.9%. The dividend will be payable on March 30, 2023, to stockholders of record on March 15, 2023, with an ex-dividend date of March 14, 2023.

Life Storage shares closed the week with more than an 11% gain.

Newmont Goldcorp makes $16.9B takeover offer for Newcrest Mining
Sydney shares of Newcrest Mining (ASX:NCM), Australia's largest gold miner, surged 9.3% on Monday after receiving a $16.9B takeover offer from global peer Newmont Goldcorp (NYSE:NEM), the second such approach in recent months. American depositary shares (OTC:NCMGF) were up more than 13% on the day.

Newmont offered 0.380 of its shares for each Newcrest share. If the deal happens, Newmont will own 70% of the combined company and Newcrest will own 30%.

Newmont Goldcorp shares closed the week with more than a 3% loss.

Brookfield Reinsurance to acquire Argo Group for $1.1B
Brookfield Reinsurance (NYSE:BNRE) and Argo (NYSE:ARGO) declared they have reached a final agreement to merge. Brookfield Reinsurance will be purchasing Argo in an all-cash transaction valued at approximately $1.1B.

Argo shares rose nearly 4% on Wednesday following the announcement, closing the week with a 5% gain.

Criteo S.A. initiates a new sale process
Criteo (NASDAQ:CRTO) is making a new effort to sell itself after previous attempts failed, reported Reuters on Tuesday. Investment bank Evercore Inc. is advising the company in the sale process, which began last week. The news caused Criteo's shares to soar around 8% on Tuesday and close the week with a nearly 10% gain.

Globus Medical and NUVASIVE to combine in all-stock deal
Globus Medical (NYSE:GMED) and NuVasive (NASDAQ:NUVA) announced their all-stock merger agreement. The deal, approved by both companies' boards, will result in NuVasive shareholders receiving 0.75 shares of Globus Medical for each NuVasive share, with an implied price of $57.72 and a value of $3.1B based on Globus Medical's Feb 8 closing price.

Upon closing, NuVasive shareholders will own 28% of the combined company and Globus Medical shareholders will own 72%.

Following the announcement, Globus Medical plunged 18% on Thursday (down 24% for the week), while NuVasive gained nearly 3% (down more than 7% for the week).