Today's main event will be the FOMC meeting where we expect no changes in policy rate, in line with consensus. The focus will instead be on the updated dot plot, i.e. how the policymakers see the future rate path.

In Germany, we receive the producer price index from August. The yearly growth rate will likely show a large decline as producer prices peaked last year in August/September and have since then reverted in line with energy prices.

In the euro area, new car registrations for August will be released. New car registrations have rebounded over the last months in line with consumer confidence following the declines in the winter.

In Sweden, we get unemployment data and government budget, see more below.

The final euro area inflation figures for August were revised down to 5.2% y/y from 5.3% y/y in the flash estimate. The final release confirmed core inflation at 5.3% y/y and headline at 5.2% (pr. 5.3%). Note that the revision of headline inflation was due to a change down to 5.244% so very close to unchanged at the first decimal. Service prices are still sticky at 5.5% y/y while inflation in goods continue to grind lower albeit still recording increases of 4.7% y/y. Like goods, food price inflation is also coming down, but is still at a high level of 9.7% compared to 10.8% in July.

The US Congress continues to struggle to pass a funding bill to avert a looming government shutdown on 30 September. On Sunday, the leaders of the hardline republican House Freedom Caucus struck a deal with representatives from the more moderate Main Street Caucus on a short-term 'continuing resolution' funding bill until 30 October, which House speaker McCarthy will bring to the House floor on Thursday. But as the bill contains an immediate 8% spending cuts to several federal agencies and excludes further aid to Ukraine as well as disaster relief it will have a very difficult time passing the Senate, which is controlled by the Democrats, even if it passes the House vote. Eventually, we think the most likely option is that Congress approves a set of bi-partisan funding bills which have been prepared in the Senate. While they still face some hurdles, the bills (with funding in line with the debt ceiling agreement from May) generally have broad bi-partisan support in the Senate as well as among House democrats and moderate House republicans. On the downside, McCarthy can only pass it through the House with support from the Democrats, which could lead to hardline republicans challenging his position as a speaker. It remains to be seen what happens to McCarthy after that.

Equity investors remained cautious on Tuesday, with defensives outperforming and equities slightly lower. It was a quiet session and we therefore saw only a small difference between sectors and styles. However, quality defensives were overall in favour, such as health care or big tech. S&P closed down -0.2% and Europe around unchanged. Banks performed well in the Nordic session. Both US futures and Asian markets are drifting lower this morning again.

Euro rates ended higher by 2-3bp across maturities, with a slight intra-euro area spread tightening reflecting comments from ECB's Villeroy who said that the current 4% deposit rate level should be maintained for sufficiently long to bring inflation in line with target. Market pricing is still slightly skewed for one additional hike at 7bp through December.

FX markets are clearly in waiting mode ahead of the perceived hawkish hold decision by the Fed tonight. EUR/USD has erased some of the losses after the dovish hike by the ECB last week and the next leg will crucially depend on forward guidance, that is, the dot plots and Powell's press conference. The same goes for the rates sensitive USD/JPY. Scandies were generally in a better mood with EUR/SEK dipping below 11.90 and EUR/NOK below 11.50. The crosses closed the US session slightly above these respective levels.

Credit markets ended the day on a slightly negative note yesterday with iTraxx main widening 0.4bp to 69.8bp and Xover widening marginally by 0.1bp to 390.

Tomorrow, trading will commence in the new iTraxx series (index rolls from series 39 to 40) where there are quite large changes to index constituents leading to technical widenings in the standard indices.

In Sweden, the August unemployment and Government 2024 budget are both due at 08.00 CET. We expect the unemployment rate to show a minor uptick in seasonally adjusted terms from the July 7.0 % print. That said, the labour market remains solid and "labour hoarding" is till the dominant theme for a majority of Swedish firms.

Previous leaks suggest we know most of the SEK 40bn reforms to come in the budget this morning: welfare transfers to municipalities, reduced income and car fuel taxes and increased housing renovation subsidies. This is too little to have any impact on inflation and too little to give any significant stimulus. The budget is basically taking the backseat with Riksbank in the driver's seat.