Financial markets pulled back ahead of the FOMC meeting. Investors were cautious as it's getting more likely that the Fed would wait until next month for announcing additional easing measures. Meanwhile, Germany poured cold water on bond purchases program anticipated by the market. Finance spokesman Johannes Blankenheim said that "the ESM treaty does not foresee a banking license, and we also see no need for a banking license for the ESM". Michael Meister, a CDU member, also stated that "such a proposal is incompatible with the ECB's statute". Wall Street dropped with the DJIA and the S&P 500 losing -0.49% and -0.43% respectively on the last trading of July, though both gained during the month. In the commodity sector, crude oil plummeted with the front-month WTI contract slumped to as low as 87.31 before settling at 88.06, down -1.92% during the day. The contract gained +3.65% during the month. The equivalent Brent crude contract lost -1.21% yesterday but added +7.28% in July. The benchmark contract for gold pulled back after initially surging to 1631.6, the highest level in more than a month. Gold was up +0.65% last month.

More and more investors shared that view that the Fed would remain on hold in August, leaving the decision of QE3 until September. By that time, two employment reports would have been released for gauging the impacts of extension of operation twist in June. Also, a press conference will be held and staff forecasts will be published. For the August meeting, policymakers might extend the low rate guidance to late 2015. The bond market has been widely anticipating that the first rate hike would be delayed to at least until April 2015.

The macroeconomic data released in the US was positive with the Chicago PMI climbing to 53.7 in July from 52.9 a month ago. The market had anticipated a drop to 52.2. Consumer confidence improved to 65.9 in July from 62 in June. This was compared with consensus of a slip to 61.5. The S&P/Case-Shiller Composite-20 dropped -0.7% y/y in May but the decline was milder than market forecast of -1.5% and April's -1.9%.

The ISM manufacturing index would be closely watched. The index probably improved to 50.4 in July from 49.7 in the prior month. The ADP might report addition of payrolls by 120K in July, following a 176K gain a month ago. Today in Asian session, a similar gauge in China fell to 50.1 in July from 50.2 in June. Despite the drop, market sentiment was restored as the government pledged to maintain growth with various monetary policy tools.

The industry-sponsored API estimated that crude inventory slumped -11.6 mmb in the week ended July 27. Fuel stocks also dropped with gasoline and distillate losing -0.54 mmb and -1.30 mmb respectively. The official data from the DOE/EIA will probably report a -1.00 mmb decline in crude inventory while gasoline and distillate might have risen +0.8 mmb and +1.00 mmb respectively.