So, where are we with the markets – was it a bump or something more ominous? The evidence so far firmly points to the former, the bump. A nasty one but not unexpected. Here’s the quant team at SocGen from this morning.

“Global equity markets have continued to shrug off bad news and have now recovered strongly from the correction in the first half of February’. MSCI World Developed jumped 4.2% last week, its strongest weekly gain since October 2011, putting it back into the black for 2018. Emerging Markets also saw strong gains, rising 5.0% on the week, leaving the index up 3.6% YTD. Just as selling activity during the recent sharp decline looked to be top-down led, so has the rebound, with little to choose between the regions performance-wise when viewed in USD terms, and with cross-sectional share price dispersion remaining depressed. Weekly style performance was fairly muted which is unusual given the strength of the rebound…US dollar weakness remains centre stage, and the positive effect it has had on what are US dollar-denominated indices should not be overlooked. For the euro investor, for example, MSCI World is down in price terms over the past year and the DAX peaked in May last year, and while US earnings momentum has surged ahead on the back of both the weak USD and tax cuts, European EPS momentum is heading the other way. Solomon Tadesse has recently developed the concept of using the volatility of lower quality stocks to forecast markets as an alternative to using VIX . This so-called Junk Equity Vol index certainly gained a lot of interest, having flashed red at the end of January, indicating potential equity market weakness. We are endeavouring to have the index up and running on Bloomberg soon. In the meantime the latest reading of 66 is right on the cusp of the “normal” zone – so it would appear for now that the storm in equities has passed, at least based on this signal. The same cannot be said for US bonds or, of course, the US dollar.”

Just to bang the point home, Charles Stanley brought out another issue of its earnings tracker later on in the morning. Its headlines?

“FTSE 100 reported earnings growth now stands at 44% year-on-year for 2017 with all sectors seeing positive growth. However, this is heavily skewed by Energy’s strong performance where earnings are up 99%. …Looking ahead, consensus expectations are for the FTSE 100 to see earnings growth of 9% in 2018 with Energy, Tech and Telecoms considered as having the biggest growth potential. Materials, Healthcare and in particular Utilities are expected to see their earnings decline.”

And just in case you hadn’t got the message, the surge in global dividends was also highlighted by a note from Janus Henderson. They reported that :

A strengthening world economy and rising corporate confidence pushed global dividends to a new high in 2017, according to the Janus Henderson Global Dividend Index. Global dividends rose 7.7% on a headline basis, the fastest rate of growth since 2014, and reached a total of $1.252 trillion. Every region of the world and almost every industry saw an increase. Moreover, records were broken in 11 of the index’s 41 countries, among them the United States, Japan, Switzerland, Hong Kong, Taiwan, and the Netherlands.”

One last observation – on digital currencies. Some market observers have suggested that the recent rout in crypto’s might have had some impact on mainstream equity markets. I’m not sure I buy this analysis but I would observe that in recent days the one currency I track – Ethereum – has bounced back off recent lows and is possibly heading back towards $1000.

So, what initial conclusions can we draw from these obviously very limited observations?

My guess is that the nasty volatility of the last few weeks has in effect amounted to a re-pricing of Central Bank policy normalization as well as an accompanying re-pricing of inflation prospects amid firming wage pressures.

The bad news I’m afraid is that if I were a central banker I’d take away one obvious conclusion – that the markets have started to adapt to a new rates environment. This might encourage the Fed to more aggressively increase interest rates, thinking it can get away with a more marked increase. If that is the case, there is much worse to come! Once US 10 year rates head past 3%, expect more volatility.