Monthly new residential construction, December 2023

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Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 25-26 October 2023 the narrative in financial markets had entirely turned around, proving once again its high sensitivity to incoming data and central bank communication. Markets had turned bullish, driven by expectations of quick and “immaculate” disinflation and an early and sharp monetary policy reversal. This repricing had supported risk asset prices, with equity markets soaring and sovereign and corporate credit spreads narrowing amid continued smooth market absorption. Buoyant risk asset markets and a stronger euro exchange rate were consistent with investors pricing in a bottoming-out rather than a deterioration in the euro area’s economic growth momentum. Looking at the key drivers of financial market developments and monetary policy expectations, the first and dominant factor had been the downward surprise in inflation worldwide. Second, other macroeconomic data, excluding inflation, had also come in better than expected in the euro area, alleviating fears of a “hard landing” of the economy. The third factor supporting investor risk appetite had been diminishing impact of geopolitical tensions, accompanied by lower oil prices. The pronounced post: ECB ACCOUNTS: IT WAS STRESSED THAT THERE WAS NO ROOM FOR COMPLACENCY. post: ECB ACCOUNT: A SIGNIFICANT PART OF THE RATE PASS-THROUGH IS PENDING. post: ECB ACCOUNTS: MEMBERS EXPRESSED INCREASED CONFIDENCE THAT INFLATION WOULD BE BROUGHT BACK TOWARDS THE 2% TARGET IN 2025. post: ECB ACCOUNT: SPECULATIVE FX POSITIONS POINT SOFT LANDING HOPE.