Geopolitics weighs on sentiment again

On the radar

• Moody’s completed periodic review of rating of Serbia and Slovenia. The reviews are not credit rating actions.
• Today, Hungary releases producer prices at 8.30 AM CET.
• Poland will publish flash inflation in August and 2Q26 GDP structure.
• Slovenia will also release flash inflation in August.
• At noon CET, Serbia will show 2Q26 GDP structure, industrial output, retail sales growth and trade balance in July.

Economic developments

Today, we look at the Economic Sentiment Indicator (ESI) and Consumer Confidence across CEE countries. In August, both indices deteriorated by roughly 2 points on average. While the spur of optimism in June and July, related to news about a possible resolution of the conflict in the Middle East, pushed both indices higher, increasing geopolitical tensions seem to be weighing on market sentiment again. The ESI declined most notably in Slovakia, by 5 points, while it remained stable in Croatia in August. As far as Consumer Confidence is concerned, the largest deterioration was recorded in Hungary, Czechia and Slovenia. In Hungary, a correction in both indices could actually have been expected to some extent. Following the parliamentary election in April and the change of government, both the ESI and Consumer Confidence rose strongly regardless of the global situation, and it seems that this wave of optimism has now reached its limit.

Market movements

In his speech at the Jackson Hole symposium Fed Chairman Kevin Warsh highlighted the strong economic performance and viewed the labor market as solid and in line with the goal of full employment. The key issue, however, is accurately assessing underlying inflation. From Kevin Warsh’s perspective, policymakers must be confident that it is trending downward; if not, then “there is work to be done.” All in all, probability of U.S. interest rate hike has increased. CEE currencies remain weaker against the euro at the beginning of the week. EURCZK is at 24.13, EURHUF at 365 while EURPLN holds close to 4.34. Over last week, at the top of impact of Jackson Hole speeches, CEE government bonds were negatively affected by the CIA director’s visit to Moscow, which investors interpreted as a sign of a potential escalation of Russia’s military operations in Ukraine or along NATO’s eastern flank. This week, local flash inflation data for August are most important from the market perspective. In Czechia we adjust our interest rate outlook and see key policy rate at 4% at the end of the year.

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