EME Macro/Strategy: Attention! Something is not right

The February Economic Sentiment Indicators (ESIs) for the Eurozone and the EU fell for the second month in a row. The index remains at a high level, but the turning points, historically, have signalled a stock market correction. This time may be different as the market has corrected recently already, but the breakdown gives grounds for concern: hiring appetite and expected export orders have fallen, and consumer confidence appears to have reached a plateau, while savings appetites are rising. The picture remains bullish in the construction sector. On the other hand, in central Europe, surveys remain positive, bar in Romania. Inflation surprised to the downside in January across countries, but we see this as a transitory setback. Industrial and selling price expectations are very much trending up, and wage pressures are continuing to rise in CEE and Turkey. On the political front, the Czech Republic has achieved barely any advancement on the back of the new government formation, while the upcoming parliamentary elections in Hungary (8 April) may not prove that easy for Fidesz to win for the third time.