Insights into European and global markets: a perspective by Tom Westbrook

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Japanese Pay Agreements: Major Japanese companies have acquiesced to union pay demands in full, signaling potential for stronger wage momentum. This could prompt the Bank of Japan to consider a historic policy shift away from negative interest rates next week.

2. Wage Momentum Driving Confidence:Wage increases, exemplified by Toyota Motor’s largest raises in 25 years, are bolstering Japanese spending and confidence, indicating a positive feedback loop in the economy.

3. UK Economic Data: The UK is set to release monthly growth figures, with January’s GDP expected to rebound by 0.2% after a minor dip in December. Although frequent releases make trend analysis challenging, markets are not pricing in a Bank of England rate cut until August, lending support to the sterling.

4. Sterling Strength: The British currency is testing the upper limits of its range against the euro, a position it has maintained for almost a year, reflecting confidence in the UK economy and monetary policy.

5. Euro/Dollar Volatility Decline: Deutsche Bank’s report highlights the prolonged decline in euro/dollar volatility. Reduced concerns about eurozone stability since Mario Draghi’s commitment to save the euro, balanced transatlantic flows, and shifting volatility trends elsewhere contribute to this phenomenon.

Source: Reuters

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