The second half of 2014 disturbed the complacency of many who believed that financial markets remained settled in a predictable pattern.

Equity markets suffered two notable setbacks – bond yields fell sharply and, perhaps most extraordinarily, the oil price halved. Surprises have continued into the new year with the Swiss National Bank cutting the franc’s peg to the euro, thus allowing a near 20% appreciation in the currency.

We had been predicting that markets would become more volatile, although at the same time remaining committed to equities as our preferred asset class based on long-term return projections. This thesis was tested but remains intact.

Among key trends to emerge have been strength in the US Dollar, persistent weakness in the European economy and lower prices for many commodities. Global equities closed 2014 very close to their all-time highs, while bond yields in many countries, notably Germany, closed at or near all-time lows.

This appears to be sending very mixed messages about the health of the global economy, but also acknowledges the influence of continued unprecedented monetary intervention by central banks around the world. 2015 is likely to witness a continued battle between the forces of recovery and deflation with the result that markets will continue to be more volatile, but with equity markets retaining an upward bias.

Since the financial crisis, the main weapon of the central banks has been monetary, culminating in the European Central Bank’s (ECB) announcement of a Quantitative Easing programme in January. This has led to negative interest rates in some countries. Yet economic growth has hardly been spectacular, even in the notably better-performing US and UK.

Is there any chance that matters will improve? And what if they don’t respond to current policy?

There are two sides to the credit equation, demand and supply.

The bearish view is that demand is dead and that no amount of cheap money will encourage an increase in lending.

The lesson from the US (and to some degree the UK) is that a combination of policies can work. The US was very quick to cut interest rates, refrained from too much austerity and forced a swift recapitalisation of the banking sector, with equity holders bearing much of the pain.

In both the US and UK a recovery in residential property prices (boosted by specific policies here) was aligned with an improvement in consumer demand, which I think is more than mere coincidence.

The ECB, on the other hand, continued to wear its hairiest of hair shirts and austerity was the order of the day. Property prices plummeted in most places except Germany.

However, slowly but surely the banking system in Europe has been rebuilding its capital and reserves, which currently stand at around €2.5 trillion, up from €1.5 trillion pre-crisis.

Meanwhile loans outstanding have fallen 10% from a peak of around €11 trillion.

The truth is we shall never know if there is demand or not until banks are in a better position to lend and we are much closer to finding out.

Encouragingly, the first bank lending survey following the ECB’s Asset Quality Review showed signs of a tick up in both supply and demand.

House prices are stabilising and even recovering in some of the worst affected countries and car sales have been picking up nicely, even in Italy! Will it turn out to have been darkest just before dawn?