The world is decoupling from the US, just not in the way the optimists hoped. Yesterday, with US stock markets closed for Martin Luther King Day, equities got slammed across the globe. Most major indices dropped by 4 to 6 per cent.

According to one school of thought, equities are finally catching up with the quicker witted world of fixed income. For months, as share prices have sailed along serenely, declining fixed income prices have been screaming that the credit cycle has turned. An ugly-looking US yield curve, meanwhile, has been pricing in the kind of flurry of rate cuts associated with economic distress. Two-year bond yields are 2.3 per cent, compared with Fed Funds of 4.25 per cent and 10-year yields of 3.6 per cent. Equity investors, the argument goes, have only just begun to wake up to the possibility of a slowdown.