Central European currencies stayed cautious despite further gains of global equity markets and weaker US dollar. We are somewhat afraid that expectations ahead of EU summit, scheduled for 23rd October, are high and pose potential danger for CEE markets. Especially the Polish zloty has strengthened pretty significantly since the elections outcome (last Sunday) and the victory of current Prime Minister Donald Tusk. Unfortunately also the Polish political scene provides some room for disillusion. Donald Tusk was pretty clear that he would not change his “gradual” approach to the reforms, which many economists and rating agencies translate as disappointingly slow. Rating agencies have already warned that if they do not see more decisive action after the elections they could downgrade Poland. Also the Polish central bank governor (Marke Belka) called for “meaningful step in public finance consolidation”. Belka added that the Central Bank can support government actions via stable monetary policy that would avoid extreme reactions. That supports our view of longer term interest rate stability, at least till mid of 2012. Also the Hungarian fiscal news look rather negative. State audit office warned that budget does not calculate with about 100 billion HUF losses at the National Bank of Hungary. In this context the Czech budget position remains rather favourable despite the fact, that budget revenues were significantly weaker than expected. Moreover, finance minister Kalousek said recently that the government would undershoot the deficit target for 2011 and the budget gap would be lower than 4% of GDP.