In Japan, the clean-up and reconstruction process has begun. After the appalling loss of life and the attendant shock that must be felt following the earthquake and tsunami, perhaps the best response is to put all one's energy into rebuilding. But that can only be done effectively once the victims of the disaster are fed, clothed and sheltered. That mission is ongoing and our thoughts are with those affected.

On top of this, the battle to regain control of the damaged nuclear reactors at the Fukushima plant continues. It is difficult to know how this is progressing, although it seems that a set-back immediately follows every piece of positive news.

While it appears that there is little to no chance of serious radioactive fall-out hitting Tokyo, increased radiation levels have been picked up outside the 30 kilometre exclusion zone. Certain food and water supplies have been affected, and this must add considerably to general anxiety levels.

One thing is for sure, and that is that the uncertainty added by the nuclear dimension significantly complicates how one assesses the economic consequences of the original natural disaster.

If one focuses on the major global stock indices, it can now be seen in hindsight that the sharp sell-off following the Japanese earthquake provided a decent buying opportunity. The Dow, S&P and FTSE for example, are now trading around March 11th levels, back where they were before news of the disaster first made headlines.

Even the Nikkei has made back well over 50% of the losses it suffered in the immediate aftermath of the tragedy. But if the initial sell-off was overdone, maybe this recovery has also gone too far. After all, the rebuilding process will be hugely expensive, with recent estimates ranging from Goldman Sachs' estimate of $200 billion, to High Frequency Economics' $600 to $800 billion.

For a highly developed and industrialised country like Japan, it is difficult to estimate what the final cost may be. But while reconstruction may well help to lift GDP, the strain of the rebuilding costs on this grossly over-indebted economy will be severe.

Stock markets face a number of other strong headwinds. Equities had been falling since mid-February in response to the wave of unrest that spread across North Africa and the Middle East. The tensions are rising rapidly with the UN-mandated military intervention in Libya ensuring a drawn -out conflict, and more countries in the Middle East seeing protests on their streets.

There are more problems in the euro zone as Portugal's government collapsed after MPs rejected fresh austerity measures. The bond yields of the peripheral countries are shooting above danger levels. There is a danger that the EU Summit will fail to live up to expectations, as politicians from the European core fail to address the debt crisis, fearful of the backlash from their constituents.

But as long as the Fed continues to goose the economy with its asset purchases, investors seem happy to "buy the dips". Looking at the S&P, there is a trading band around the 1,296/1,304 area which previously acted as support. Having broken below here last week following the Japanese crisis, the index has bounced back sharply to test this area which is now acting as significant resistance.

A break above here would be a bullish signal. But QE2 runs out in little over three months, and making a case for further stimulus is going to be difficult. Many countries now blame QE for raising inflation, and the Fed will find it difficult to insist on a third round of debt monetisation while simultaneously claiming that the economy is improving.

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