(This Aug 5 story corrects milestone in sixth paragraph to "biggest increase", not "highest")

A look at the day ahead in markets from Alun John

U.S. payrolls data day is dawning shortly and set to tell us whether markets should be more worried about inflation or a recession.

As Rabobank notes -- Will a weak print provide more ‘pivot-fuel’ for a market already so drunk on it that it won’t heed the Fed saying “WRONG!” over and over – as they just did yet again yesterday? Conversely, will a strong payrolls number sober the market up?

If markets decide good jobs news is also good news for stocks, expect the bouncers at the Fed to shout even louder.

A Reuters survey of economists expects U.S. non-farm payrolls to have increased by 250,000 jobs last month after rising by 372,000 in June. But signs from other claims and related data warns of a poor number.

The jobs data will likely outshine most morning news in Europe, though Allianz (ETR:ALVG)

Investors have had a night's sleep to see if they're happy with their response to the Bank of England raising rates by 50bps to 1.75%, the biggest increase in 27 years - and warning of a long drawn out recession.

Two-year gilt yields fell, future hikes were priced out and cuts priced in, while the 10-year yield slipped 3bps to 1.88%.

Sterling lost ground on the euro, though clawed back its initial losses against the dollar in U.S. trading.

Shares rose in Asia this morning, particuarly in Taiwan, as markets decided China firing missiles near the island after Nancy Pelosi's visit was less worrisome than it could have been.

Key developments that could influence markets on Friday:

Economic data: US non-farm payrolls July, Canadian July jobs data, German June industrial output, UK Halifax housing data July

Europe earnings: Deutsche Post, London Stock Exchange, Rheinmetall, Allianz, WPP (LON:WPP), Hargreaves Landsdown

US earnings:  Goodyear Tire & Rubber, Western Digital Corp (NASDAQ:WDC)