At the beginning of 2018, we positioned more cautiously for markets caught between headwinds from the end of QE and tailwinds from positive growth. This is what happened so far and what we expect from the second half of the year:

1. Financial markets have underperformed the economy

2. The US continues to outperform the rest of the world

3. Risk premia have re-priced sharply across Europe and EM

4. There is no systemic risk but sudden spikes in volatility

5. Re-pricing may accelerate, however growth remains positive and we see low chance of a turning point in default rates, especially in Europe

This is an extract from The Silver Bullet, Algebris Investments' macro letter.

Alberto Gallo is Head of Macro Strategies at Algebris (UK) Limited, and is Portfolio Manager for the Algebris Macro Credit Fund (UCITS), joined by macro analysts Tao Pan, Aditya Aney, Abbas Ameli and Pablo Morenes.

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