Recovering from the greatest economic and financial meltdown of the post-WWII period was never going to be a straightforward process given the deep scars on consumer, business and investor confidence. An unprecedented policy response succeeded in breaking the self-feeding spiral of falling asset prices and imploding economic activity, but rebuilding damaged confidence was bound to take time. When nerves are brittle, it does not take much to cause a renewed retreat from risk.

Concerns about euro area sovereign debt and a China hard landing provided a good excuse for a pullback in equities and other risk assets. Investors seem to be back in panic mode, and the trend in equity prices is less than favourable. A judgement call about the big-picture economic outlook is necessary to determine whether this is just another temporary setback or the onset of something far more serious.