LONDON BRIEFING/Chris Johns:The stock market is at it again. UK manufacturing looks as if it is slipping back into recession, the consumer is flagging, house prices are stalling and taxes are rising; yet share prices are staging a strong rally. The FTSE 100 is 20 per cent above levels seen as recently as March. What is going on?

We know that the economy and share prices can often go off in different directions. Share prices always try to anticipate what happens next while the economic data are always backward looking and often inaccurate.

But since the great stock market bubble burst in March 2000 we have had four similar 20 per cent upswings in the market, prompted by hopes of better times ahead, only for disappointment to set in and equity prices, ultimately, to set new lows. Is this just another bear market bounce, destined to end in a similar way? Or is the market right to think about a turning point?

Economic data have been poor, although not quite as gloomy as many commentators had feared. The war in Iraq has not had as many negative effects as had been forecast in some quarters. Most importantly, the oil price has now fallen back to where it should be and is acting as a kind of tax cut - much needed, given Gordon Brown's tax hikes began to bite in April.

Unemployment is not shooting up which suggests that the consumer should keep ticking over, if not at the heady pace seen in recent years. The domestic UK economy, while not exactly bounding along, seems to be holding its own.

If the Bank of England cuts rates this week it probably won't be because of developments at home. Rather, the state of some of our major export partners must now be giving serious cause for concern.

The situation in Germany, in particular, seems to be going from bad to worse, and is now showing signs of infecting other parts of the euro area.

Most forecasters had pinned their hopes on the French economy holding on, but that too is showing signs of finally rolling over. The core European economies now look to be in serious difficulties. They have struggled to register positive growth for the last three years.

Cuts in UK interest rates will do little to solve external problems. The Bank of England is right to argue that some things are simply outside its control. The term "corporate malfeasance" has been commonly used in the wake of the Enron and other scandals.

Some of us wonder if "central bank malfeasance" is a term that should be applied to the behaviour of the ECB. Members of the UK monetary policy committee must look at the actions of their counterparts in Frankfurt and wonder how they get away with it.

If any central banker in the UK or US had followed a similar path to the one taken by the ECB they would have been summarily executed.

The problems faced by UK (and US) policymakers are now acute. They can do what they can to keep the domestic economy going. But with Europe grimly determined to do the exact opposite there is something very unsustainable about the pattern of global growth. At least, that is what orthodox analysis would tell us.

Perhaps equity prices are telling us that it is wrong to worry that some of the world's largest economies are determined not to grow. Germany has never had a large stock market and Japan's is now smaller than the UK's.

Perhaps it is inevitable that the available supply of global capital will flow to those countries that want to invest for growth, which is why the US and UK run large capital account surpluses (the counterpart of those balance of payments deficits that everybody worries about).

Those few companies in Europe that bother to get a stock market listing (there are few of them compared to the UK and US) do so because they manage to survive and even prosper in a difficult environment. Europe's antipathy towards economic growth does not stop companies from doing well - it just sets a limit on how many can do so.

For the stock market to continue to do well we would have to push all of this rather unconventional thinking much harder. Which is why it is rather hard to see much more of a sustainable rise in share prices from here - unless we are just returning to the bubble conditions of the late 1990s.

The key lesson of that period is that unconventional explanations of share price strength are rarely to be trusted.

Those people looking for a quick return to booming stock markets are likely to be disappointed. The worst is probably over but there are still plenty of things for the bears to worry about.

Chris Johns is chief strategist at ABN AMRO Securities, London. All opinions expressed are entirely personal.