A look at the day ahead in European and global markets from Tom

Westbrook

Big Japanese companies have agreed in full to union pay

demands, a sign that workers could perhaps have pushed a bit

harder, but also that wage momentum could encourage a historic

policy shift by the Bank of Japan.

While hotter-than-expected U.S. inflation - and the risk of

upside surprises elsewhere - is pushing back bets on rate cuts

in much of the world, there is growing speculation that Japan

will end its experiment with negative interest rates next week.

Wages are front and centre as a driver of a positive

feedback loop reinforcing Japanese spending and confidence. Pay

rises at Toyota Motor were the biggest in 25 years and the yen

drew support from signs of a sustainable revival in Japan's

economy.

Monthly British growth figures are due in the London

morning, followed by European industrial production numbers that

are expected to turn sharply negative. British monthly GDP is

seen rising 0.2% for January after a 0.1% drop in December,

although it is hard to read much from such frequent releases.

Markets haven't fully priced a Bank of England rate cut

until August this year, helping to support sterling. The British

currency is testing the strong side of a range it's kept on the

euro for nearly a year.

Incidentally, Deutsche Bank published a report overnight

noting the long decline in euro/dollar volatility.

Strategist Alan Ruskin says this could be explained by

reduced worries about eurozone stability since Mario Draghi

promised to do "whatever it takes" to save the euro, as well as

a balance in transatlantic flows and a shift of volatility

elsewhere.

Perhaps the allure of crypytocurrencies and the

outperformance of U.S. shares are keeping gamblers out of FX

bets.

Key developments that could influence markets on Wednesday:

Earnings: Adidas

Economics: British GDP, eurozone industrial production

Speeches: ECB's Cipollone