Economic transition confuses commodities

<p>Kia ora, </p><p>Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news commodity prices are bifurcating in a transitioning mix if public policy signals.</p><p>The US Fed released the <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210728.pdf" target="_blank"><strong>minutes</strong></a> of their last meeting earlier today and they now see their inflation target being hit. But they are debating the timing and mechanics of easing back their stimulus policies. <a href="https://www.marketplace.org/2021/08/18/boston-fed-president-thinks-its-nearly-time-to-taper-the-central-banks-stimulus/" target="_blank"><strong>Some want a speedy reset</strong></a> on the basis that continuing large bond purchases are inappropriate for where the US economy is now: stimulus does not address supply shortages and will just make inflation overshoot.</p><p>There was a modest <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/R_20210818_2.pdf" target="_blank"><strong>US Treasury bond auction</strong></a> overnight for their 20 year paper. It was for US$30 bln of which the Fed took US$3 bln. The remainder attracted US$66 bln in bids at a resulting median yield of 1.78%. That is marginally lower than the <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/R_20210721_2.pdf" target="_blank"><strong>prior equivalent event</strong></a>'s 1.80% median yield a month ago.</p><p>US <a href="http://www.interest.co.nz/sites/default/files/embedded_images/newresconst.pdf" target="_blank"><strong>housing starts</strong></a> were expected to weaken in July, but they fell more than expected. However this was offset by a faster-than-expected rise in building permits for housing.</p><p>Perhaps related, American <a href="https://www.mba.org/2021-press-releases/august/mortgage-applications-decrease-in-latest-mba-wee