Markets advanced in Asia on Friday as investors bought yesterday’s dip. Japan’s Nikkei index climbed 1.94 percent after falling 6.35 percent on Thursday. The yen weakened slightly to trade at 94.8920 to the dollar. In Hong Kong, the Hang Seng climbed 0.39 percent, while the S&P/ASX 200 climbed 2.04 percent in Australia as investors took positions in large-cap companies.

Markets also advanced in Europe in mid-day trading on Friday following the bounce in Asia, although gains were modest. Germany’s DAX was up 0.48 percent, London’s FTSE 100 was up 0.08 percent, and the STOXX 50 index was up 0.32 percent.

U.S. futures at 8:45 a.m.: DJIA: -0.09%, S&P 500: -0.08%, NASDAQ: -0.01%.

Here are three stories to keep an eye on.

1) G20 GDP Growth Accelerates… Modestly: The Organization for Economic Cooperation and Development reported on Friday that first-quarter GDP grew by 0.7 percent on the quarter and 2.4 percent on the year in the G20 area. Perhaps unsurprisingly, China had the highest rate of growth (+7.7 percent) while Italy had the largest contraction (-2.3 percent).

The report points out that the aggregate growth rate among the G20 nations “continues to mask diverging patterns across the world’s largest economies.” This is in reference to the accelerating growth rate in countries like Turkey (up from +0.1 to +1.6 percent), Japan (up from +0.3 to +1.0 percent,) and the United States (up from +0.1 to +0.6 percent), and slowing growth in major European nations like France and Germany.

Source: Organization for Economic Cooperation and Development

2) Inflation Indicators: As expected, inflationary pressures across the euro zone remained relatively weak in May. Eurostat, the statistical office of the European Union, reports that the annual inflation rate in the euro area was 1.4 percent in may, up from 1.2 in April and down from 2.4 percent in the year-ago period. Annual inflation across the broad European Union was 1.6 percent in May, up from 1.4 percent in April and down from 2.6 percent in the year-ago period.

The largest upward impacts on euro area annual inflation came from fruit and vegetables (+0.11 percentage points each) and electricity (+0.09), while fuels for transport (-0.28), telecommunications (-0.18) and medical and paramedical services (-0.08) had the biggest downward impacts.

Source: Eurostat

3) Do Top U.S. Executives Believe A ‘Recovery’ is Taking Place? There is no doubt that the U.S. economy is still struggling to make a convincing recovery from the credit meltdown. Asset prices have been pushed higher by the Federal Reserve, and the labor market is failing to keep pace with population growth. However, the latest report on sentiment from chief executive officers predicts a slight improvement for certain areas of the economy over the next six months.

The Business Roundtable, which is an association of chief executive officers of leading U.S. companies, recently published its second-quarter CEO Economic Outlook Survey. The survey was completed between May 13 and May 31, and provides a forward-looking view on the economy… (Read more.)

You can follow Dan on Twitter (@WscsDan)

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Markets were mixed in Europe in mid-day trading, following a battery of manufacturing reports from the region. Germany’s DAX was up 0.34 percent, London’s FTSE 100 was off 0.25 percent, and the STOXX 50 index was up 0.25 percent.

U.S. stock futures at 8:35 a.m.: DJIA: +0.32%, S&P 500: +0.35%, NASDAQ: +0.33%.

Here are three stories to keep an eye on:

1) Euro Zone Manufacturing Posts Best Month in Over a Year: The reading of the Markit Final Eurozone Manufacturing PMI for May came in at 48.3, above the flash reading of 47.8, and the strongest reading in 15 months. The results reflect an easing in the downturn that has gripped Europe since the crisis began, but conditions still remain in contraction. Deflationary pressures are still a concern with input costs and output prices both declining.

“Despite the final PMI coming in above the flash reading, the surveys still suggest that GDP is likely to have fallen 0.2 percent in the second quarter, extending the region’s recession into a seventh successive quarter,” commented Markit Chief Economist Chris Williamson.

2) Manufacturing Activity in China Contracts: The HSBC China Manufacturing PMI decreased from 50.4 in April to 49.2 in May, the first contraction in manufacturing in seven months.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented: “The downward revision of the final HSBC China Manufacturing PMI suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions. With persisting external headwinds, Beijing needs to boost domestic demand to avoid a further deceleration of manufacturing output growth and its negative impact on the labour market. The new leaders should strike a delicate balance between reform and growth.”

3) OECD Economic Outlook: The global economy is moving forward, but at a fractured pace. Among developed economies, growth in Europe remains painfully slow (0.6 percent GDP contraction in 2013), and the region is seen by many to be the biggest liability to the recovery. In the United States, GDP is expected to grow at just 1.9 percent in 2013 and 2.8 percent in 2014. The OECD indicates that historically high unemployment is the biggest challenge facing struggling economies.

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The U.S. is expected to grow by almost 2 percent this year and at 2.8 percent in 2014 — all good news for the world’s largest economy. However, Europe is facing a contraction of 0.6 percent this year, with only around 1 percent growth slated for next year. Germany continues to carry the euro zone, as its growth is expected to more than double to 1.9 percent next year.

While the OECD urged the European Central Bank to be active and help banks lend, the European Commission is focusing on the domestic policy of its countries. Specifically, the commission is worried about labor and service markets, seeking to get member countries to adopt more competitive policies in the face of negative growth.

Speaking at a news conference, European Commission President Jose Manuel Barroso told reporters that “member states should now intensify their efforts on structural reforms for competitiveness.” He added: “We need to reform, and reform now. The cost of inaction will be very high.”

Specifically the Commission targeted France, where the need for a more flexible labor market is hampering employers. Under the current law, it is difficult for French employers to fire someone on a permanent contract, creating stagnation in hiring. Moreover, the country has one of the highest minimum wage laws in the EU at 1,430 euros per month, or 9.43 euro an hour. That cost ultimately gets passed on to the consumer many times, and makes French goods less competitive.

The OECD thought that U.S. Federal Reserve Chairman Ben Bernanke’s potential rollback of asset purchasing may be wise, though it warned him to do so in a fashion that wouldn’t cause a market selloff, which could result in spiking bond rates.

Britain’s Help to Buy program, where the government helps homebuyers get loans and mortgage, continues to cause concern for those hoping for a strong U.K. recovery. There is worry that creating such credit for homebuyers could increase the price of housing in a bubble of sorts, especially if the overall supply of housing in the U.K. does not expand with rising purchases.

The OECD praised the Japanese economy, lauding the central bank’s efforts to expand the monetary supply and tackle the issue of deflation, which has plagued Japan for years. The nation’s government, under President Shinzo Abe, is promoting massive monetary stimulus, with the Bank of Japan buying around 70 percent of newly issued government bonds. While there continues to be optimism over the results of these efforts, Japanese markets were behaving somewhat abnormally, as sales of bonds by private investors led to surprisingly higher yields. Bank of Japan Gov Haruhiko Kuroda said, “Communication and dialogue with the markets should be strengthened.”

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European markets were lower in mid-day trading following some pessimistic news from the OECD and a weaker-than-expected jobs report out of Germany. Germany’s DAX was off 1.49 percent, London’s FTSE 100 was off 1.47 percent, and the STOXX 50 index was off 1.27 percent.

U.S. futures at 8:30 a.m.: DJIA: -0.59%, S&P 500: -0.59%, NASDAQ: -0.53%.

Here are three stories to keep an eye on:

1) How Many Homes Are Still Underwater? The historic amount of monetary easing from the Federal Reserve has acted like a life preserver to the real estate market, but many Americans still find themselves underwater or anchored to their current home.

In the first quarter of 2013, the national negative equity rate declined to 25.4 percent of all homeowners with a mortgage, according to Zillow’s Negative Equity Report. While this is an improvement from the previous quarter, another 18.2 percent of mortgaged homeowners do not have enough equity to afford a move. Across the nation, a little more than 13 million homeowners with a mortgage owe more than their home is currently worth… (Read more.)

2) German Unemployment Unexpectedly Rises: Germany’s unemployment rate remained unchanged in May at 6.9 percent, but the number of unemployed people unexpectedly rose to 2.96 million. The increase — a seasonally-adjusted 21,000 — is the largest in four years, and emphasizes how fragile the region’s labor market is.

The European Union will update its official unemployment figures on Thursday, but there is little expectation for a material improvement in the high rate of joblessness. The previous report showed unemployment at 12.1 percent across the EU27, with a 44.6 percent long-term unemployment share.

A separate report showed that the German consumer price index increased 0.4 percent on the month and 1.5 percent on the year, slightly more than expected but in line with the generally subdued inflationary pressures that the region has been dealing with.

3) OECD Cuts Global Economic Outlook: The Organisation for Economic Cooperation and Development projects that global real gross domestic product will increase by 3.1 percent in 2013 and by 4 percent in 2014, down from previous forecasts of 3.4 and 4.2 percent growth, respectively. The revised estimate, released with the latest Economic Outlook report, suggests that historically high unemployment is the biggest challenge facing recovering economies around the world.

“The global economy is strengthening gradually, but the upturn remains weak and uneven,” said OECD Secretary-General Angel Gurría. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery. Also, the fiscal adjustment of the last few years is beginning to pay off. Several countries are close to stabilising their government debt-to-GDP ratios and ensuring a gradual decline in indebtedness over the longer term.”

The report strikes an interesting and important pro-growth stance that has struggled to gain traction with many policymakers in the post-crisis era. Federal debt has become a headline issue and in Europe and the United States spending cuts have been championed as a means to reduce deficits. However, a growing body of economists — including the OECD — suggest that too much austerity too quickly can actually harm mid- and long-term growth.

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“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the International Energy Agency said in its annual Medium-Term Oil Market Report released Tuesday. This shift is expected to not only prompt oil companies to adjust their global investment strategies, but also reconfigure the way oil is transported, stored, and refined.

Although geopolitical risks are numerous, market fundamentals indicate that this surge in oil production will create a more comfortable balance between global oil supply and demand in the next five years. The MTOMR estimated that the North American supply will grow by 3.9 million barrels per day from 2012 to 2018, a figure equivalent to nearly two-thirds of the total 6 million barrels per day growth forecast for countries not part of the Organization of the Petroleum Exporting Countries. In addition, world liquid production capacity is estimated to grow by 8.4 million barrels per day — a pace significantly faster than that of demand — which is projected to expand by 6.9 million barrels per day.

As the Paris-based energy watchdog noted, continued growth in the supply of North American-produced crude oil “will cascade” through the global oil market.

Change is underway in oil demand as well as in oil production. In nearly every other facet of the market, developing economies drive growth, but in this quarter, for the first time, economies not part of the Organisation for Economic Co-operation and Development — which includes countries from Australia to Chile to Iceland to Turkey — will overtake OECD nations in oil demand. Not only that, but massive refinery capacity in non-OECD economies has begun to accelerate a restructuring of the global refinery industry and oil trading. Refiners in Europe will face a tough market due to increasing product exports for the United States and new Middle Eastern refiners.

“North America has set off a supply shock that is sending ripples throughout the world,” said IEA Executive Director Maria van der Hoeven, who discussed the report at the Platts Crude Oil Summit in London. “The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves. But as companies rethink their strategies, and as emerging economies become the leading players in the refining and demand sectors, not everyone will be a winner.”

The new technologies that are responsible for the oil boom are expected to increase production from mature, conventional fields — which, in turn, will cause oil producers to reconsider investments in other high-risk areas. However, the growth in North American oil production has created challenges as well as opportunities. With crude imports to this region tapering off and excess refining output from the United States in need of markets, the “domino effects” from this new supply will continue. While this increased production did help offset supply disruptions in 2012, if North American supply is to continue to compensate for declines and delays elsewhere, necessary infrastructure will be needed. A failure in that area would cause a bottleneck that could pressure prices lower and slow development.

Still, OPEC oil will remain a key part of the oil mix, according to the IEA, but production will most likely be adversely affected by increasing insecurity in North and Sub-Saharan Africa. The organization’s capacity has been forecast to gain 1.75 million barrels per day this year, reaching a level of 36.75 barrels per day, which is about 750 thousand barrels per day less than predicted in the 2012 MTOMR.

This shift to non-OECD produced oil will transform the global product supply chain by exerting downward pressure on refining margins and utilization rates, the Energy Agency noted. As new refining centers extend their reach, product supply chains will lengthen, resulting in higher disruption risks and potentially more volatile markets in product-importing economies.

Here’s how the market traded on Tuesday:

You can follow Meghan on Twitter (@MFoley_WSCS) for the latest industry news.

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Markets trekked up in Europe in mid-day trading. Germany’s DAX was up 0.40 percent, London’s FTSE 100 edged up 0.01 percent, and the STOXX 50 index climbed 0.43 percent.

U.S. futures at 8:35 a.m.: DJIA: +0.37%, S&P 500: +0.35%, NASDAQ: +0.49%.

Here are three stories to keep an eye on:

1) Job Cuts Fall to a Fourth-Month Low: U.S. employers announced plans to cut payrolls by 38,121 in April, according to the latest report by Challenger, Gray & Christmas. This is 23 percent lower than March, 6 percent lower than the year-ago period, and the lowest rate of job cuts since December. Through the first four months of the year, job cuts were about equal to year-ago levels.

“The economic slowdown that began late in the third quarter and is expected to turn into another summer slump has yet to result in increased or widespread downsizing. The biggest concern is that consumers, who had been holding up the economy for so many months, are starting to scale back their spending as wages continue to stagnate,” commented Challenger, Gray & Christmas CEO John A. Challenger.

2) Euro Zone Manufacturing Downturn Deepens: The final euro zone manufacturing PMI reading for April, compiled by Markit, came in at 46.7, a fourth-month low that is slightly lower than March’s reading of 46.8. This indicates that overall manufacturing business activity not only remains in contraction, but that it is trending downward.

Markit reports that all of the national PMI indices signaled contraction in April, with concerning rates of decline in Germany, Ireland, and Austria. German output fell to 48.2, a two-month low and its first contraction in 2013.

3) OECD Releases Economic Survey of Japan 2013: “Abenomics has changed the mood in Japan, bolstering confidence for private sector firms and households alike,” said OECD Secretary-General Angel Gurría at the presentation of the report in Tokyo. “The coming expansion will be driven by exports, and should increase business investment and employment and bring an end to deflation. While we are encouraged by these developments, it remains critically important for Japan to address extremely high and still rising levels of government debt and other challenges posed by its aging population.”

Source: OECD

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The prospect of a full-blown American economic recovery has hung in the atmosphere like electricity for months. The markets have pushed back to five-year highs as money moves back into equity and investors, tired of sitting on their hands, satisfy a growing hunger for risk — and growth. But market participants are bound by the economic backdrop against which they have to make investing and business decisions, and the health of that backdrop is by no means clear.

Economic indicators point in no clear direction, although a consensus has built that the worst is over. What lays ahead is uncertain, but optimism has prevailed and growth projections for 2013, while modest, are positive. The Federal Reserve projects 2013 GDP growth between 2.3 and 3.0 percent, a figure that some find overly optimistic. The OECD is projecting U.S. GDP growth of just 2.0 percent for the year.

Meanwhile, unemployment is expected to remain close to 8 percent, far above the Fed’s headline target rate of 6.5 percent…

What’s clear is that no matter how hard the government tries to revitalized a down-trodden U.S. economy, it can’t do it alone. Whether it lacks the means or the will (there’s no cure for political dysfunction), Washington has demonstrated that it can only go so far. Finding a solution to the deficit crisis prevents contraction more than it spurs growth. The real engine of growth is the private sector.

Fortunately for U.S. market participants, data from Thomson Reuters shows that firms on the S&P 500 are expecting more capital expenditures in 2013 than analysts originally predicted — more than at any point in the past four years, in fact. Assuming that the sequester doesn’t trip up market confidence, businesses will be looking for productive ways to use some of the $1.7 trillion in liquid assets that they collectively held at the end of the third quarter of 2012.

The real boon will come when higher corporate earnings translates into a material impact on the rate of job creation. As it stands, an average rate of about 180,000 jobs created per month has not been enough to curb the still-high unemployment rate.

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The CLI system was developed by the OECD to try to predict changes in economic growth and contraction. The system uses a composite of indicators such as orders and inventory changes, financial market indicators such as share prices, and business confidence surveys to anticipate economic turning points six- to nine-months before they happen.

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The CLI is compared against a long-term average of 100. Using this as a reference, the OECD calculated the CLI for its member states to be 100.2, a 0.02 percent change from September and a 0.14 percent change year over year, representing an outlook they label as “stabilizing growth.”

The October CLI for the euro area clocked in at 99.3, a 0.05 percent decline from September and a 0.88 percent decline year over year, representing “weak growth.” Taken individually, both Germany and France, two keystone economies in Europe, are expected to post “weak growth” for the coming six- to nine-month period.

Taken together, China, India, Indonesia, Japan, and Korea also had a CLI of 99.3, but this was a 0.03 percent growth from September and only a 0.73 percent decline year over year. The OECD predicts “stabilizing growth” for the five major Asian economies, spearheaded by India and China. Japan in particular is facing weak growth.

The U.S. had the highest October CLI at 100.9, a 0.09 percent increase from October and a 0.96 percent increase year over year. The OECD gave the U.S. economy the label of “growth firming,” along with the U.K., which had a CLI of 100.5, the second highest CLI.

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Hot Feature: Natural Gas Prices Plunge as Oil Surges

According to the OPEC report, the fundamental forces driving the world market were broadly stable in February. Political tensions between Iran and the West pushed the average OPEC oil price to a three-year high in late February, but weakening demand in Europe and the U.S. have had a negative oil price effect that has undercut the bullish effect of the Iranian standoff, OPEC said in its report. Still, the provider of about 40 percent of the world’s crude increased output to 30.97 million barrels a day in February.

U.S. oil consumption data for December showed a 4.6 percent year-over-year contraction, and preliminary weekly data for January and February displayed similar contracts, OPEC said. Demand declined in Western Europe as well, and looks likely to keep falling in coming months. OPEC predicts a contraction of 1.7 percent, or 240,000 barrels, in Western Europe’s oil demand in 2012. Meanwhile, China boosted demand in January by adding 800,000 barrels a day of crude oil and refined products to its commercial and strategic storage, though Chinese imports of Iranian oil fell by 90,000 barrels a day.

OPEC remains wary that the slower pace of economic growth in the Organization for Economic Co-operation and Development — an economic organization comprised of 34 countries, including the United States, Australia, and most of Europe — is crimping demand and adding more uncertainty to potential consumption growth. “Although economic data points toward a better performance, the situation in Europe along with higher oil prices has resulted in considerable uncertainties on the future oil demand for the remainder of the year,” OPEC said.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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“There is a case for the use of the reserve in some circumstances, and we will continue to look at those and evaluate that carefully,” Geithner said on CNBC television. “Obviously Iran can do a lot of damage to the global economy,” he said. “We are working very carefully to try to minimize that risk, make sure there are alternative sources of supply from Saudi Arabia and others to help compensate for reduced exports from Iran.”

The United Nation’s International Atomic Energy Agency warned on Friday that Iran has sharply stepped up its uranium enrichment drive. The report has stirred fears in Israel, which has already threatened pre-emptive strikes on Iran’s nuclear sites to stop it from pursuing an atomic weapons program. Iran insists that its nuclear program is about clean energy, not weaponry, but has repeatedly refused to shut down the program, the very existence of which is against international law.

Tehran’s threats that it will close the Strait of Hormuz — the main shipping lane for oil coming out of the Middle East — has driven prices even higher than did initial concern over the West’s embargoes on Iranian oil imports. But Angel Gurria, secretary general of the Organization for Economic Co-operation and Development, said releasing reserves that this point would not help lower prices. Higher oil prices are the result of tensions arising from “discussions every day over the Straits of Hormuz and Israel” and “would not be solved by releasing reserves,” Gurria said at a Group of 20 meeting in Mexico City.

The International Monetary Fund warned Friday that higher oil prices pose a rising threat to the global economy, but Geithner said part of the reason oil prices were rising in the U.S. was a strengthening economy, and urged Americans to take a long view. “There is no quick fix to this. No short-term fix to this,” he said, adding that the best way to keep the economy on track would be for the United States to continue to make long-term investments to expand U.S. production so as to reduce the country’s dependence on foreign oil. He also said the government should encourage Americans to use energy more efficiently to lessen the impact of supply constraints.

A few Democratic lawmakers said on Wednesday that the White House should consider tapping oil stockpiles again to send a message to Iran that the U.S. will not back down, but so far the White House has declined to comment on talks regarding a Strategic Petroleum Reserve release. David Goldwyn, a former head of international energy affairs at the State Department, said an SPR release at this point is unlikely. “Absent a new significant disruption, it is hard to see the justification for an SPR release,” he said. “Rising gasoline prices alone are not a significant justification.”

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com