THE world’s financial markets have been marked by contradictions throughout 2013. Inflation has dropped but government bonds have suffered. Risk appetites have revived but emerging markets have underperformed.

Perhaps such anomalies are inevitable given the influence of central banks on market sentiment. Offered a choice of knowing in advance the growth and inflation numbers for 2014, or the precise details of Federal Reserve asset purchases next year, investors would probably opt for the latter. If fundamentals are not driving the markets, then fitting price movements into a coherent economic framework is inevitably harder.

More recent developments have at least had a familiar ring, as markets were once again affected by the curse of August. In the first half of last month, bonds suffered as yields rose sharply. In the second half, equities were hit by the prospect of Western military intervention in Syria. Fear of conflict in the Middle East has been a regular source of market worry over the past ten years, although the worst nightmare—a great disruption of oil supplies—has yet to be realised.

It is possible to explain some of the markets’ oddities. The divergence between the performance of developed and emerging markets has reflected trends in economic data. America’s economy seems to be strengthening and Europe is edging out of recession even as the numbers from the BRIC countries (Brazil, Russia, India and China) disappoint.

In 2008 and 2009 the question was whether emerging markets could decouple from the crisis in the developed world. Now the problem has reversed itself. The developing world has a much bigger impact on the global economy than it did during the storms of the late 1990s. Although it is optimistic about America, Morgan Stanley has revised down its forecasts for global growth this year from 3.1% to 2.9%, and from 3.9% to 3.5% in 2014.

Albert Edwards, a permanently bearish strategist at Société Générale, sees the recent turbulence in emerging markets as “leading to a renewed global recession, with waves of deflation flowing to the West from Asia as China is ultimately forced to devalue in the face of an unrelenting loss of competitiveness, most especially against its emerging-market rivals.”

But an emerging-market slowdown is not all bad news. The Economist’s all-items commodities index is 14.5% lower over the past 12 months, a development that is broadly positive for consumers in rich countries. The oil price is admittedly still well over $100 a barrel, in part because of Middle East tensions. But weak commodity prices are leading to lower headline inflation rates, giving central banks in the rich world plenty of scope to continue with their supportive monetary policies.

Normally, lower inflation is good news for government bonds. But Treasury bonds have had a bad run, with ten-year yields more than a percentage point above their levels at the start of 2013. Does the rise in yields stem from expectations of reduced asset purchases by the Fed, the process known as “tapering”? Perhaps, although analysis by Dhaval Joshi of BCA Research shows that bond yields have fallen fastest in recent years when the Fed has halted quantitative easing, not when it has been most active in buying.

Another possibility is that investors have become more optimistic about the global economy and have been switching from bonds into equities. But as has already been pointed out, global-growth forecasts are being lowered, not raised; and the copper price, seen as a barometer for the global economy, has been weak.

Price movements may have been driven by the desperation of investors as they shed losing positions. That was clearly the case with gold earlier this year; after a decade of steadily rising prices, there were a lot of stale positions to unwind. Similarly, the debt crisis forced many investors to seek the safety of government bonds and pin their hopes for excess returns on the emerging markets. The sell-off in both asset classes is probably the result of a radical rethink.

A bullish position in developed-market equities, particularly in America, now looks like the consensus bet. But that depends on the story of a rebounding economy holding up, along with corporate profits. Annual earnings-per-share growth at firms in the S&P 500 was just 3.9% in the second quarter. Yet analysts’ forecasts are for double-digit growth by the middle of next year, at a time when profits are already at a post-war high relative to GDP. Not so much a contradiction, more a case of wishful thinking.