S&P futures are flat after Monday’s drop in the S&P 500 where a rout in Apple weighed on tech companies and tensions with North Korea persist; Asian stocks are modestly lower while Europe has shaken off the Korean crisis and is in the green on the back of a sharp drop in the EURUSD which has tumbled below 1.18 as the USD rises ahead of much anticipated speeches by the Fed Chair and the French president.
At 12:45pm ET Janet Yellen is due to speak at an economics conference in Cleveland on the topic of "inflation, uncertainty and monetary policy", while other U.S. and European central bankers will also offer more clues to the path of monetary policy. Investors will be parsing Yellen's words for clues on whether the U.S. central bank will stick to plans to raise interest rates in December. “Investors are not fully up to speed with the risk of hawkish signals from Fed officials,” Mizuho strategist Antoine Bouvet said. “The Fed is back in a situation where it would want to show optimism at the very least, and the market should be pricing in more hikes in the coming months and quarters than it is currently.” Money markets currently point to a 70 percent chance of a hike in December but only a 20% chance of a further hike in March 2018, and just under 3 rate hikes for the next two years.
Another big speech on today's calendar will be delivered by French president Emmanuel Macron: it is being billed as a big Euro integration platform, although it comes as a bad time, just 2 days after Merkel's ability to embrace the idea has taken a set-back. Looking at what’s expected from Macron, the press have suggested that the speech will include plans for a permanent finance minister for the euro area, a euro area budget worth several percentage points of aggregate GDP and a “European Monetary Fund”. As if to acknowledge the necessity of progress, German Finance Minister Schaeuble recently reciprocated, saying he intends to publish proposals for a reinvigorated ESM shortly after the election. We will see if the German election result cautions either. After the dust settles in Germany, the rush to integrate may need to slow. Merkel’s room for manoeuvre on conditionality just got narrower, meaning progress towards integration will likely be slower and the scale of common resources agreed will likely be more limited.
While global equities were mostly flat, the big movers overnight were the rising dollar, and the sliding euro. Indeed, as Bloomberg notes, markets attempted to stabilize as investors digested a host of catalysts from North Korean war threats and central-bank policy to tailwinds for oil and the aftermath of the German election.
The euro tumbled below $1.1800, its weakest since August 25, sliding below its 55-DMA for the first time in 5 months, as investors continued to unwind long positions, with fresh tactical selling pressure setting in ahead of Yellen's speech. What started off as a knee-jerk reaction after the German election now appears to have become a broader hit on euro bulls’ conviction. Concern that the European Central Bank may not shed sufficient light on stimulus tapering even at its next meeting is weighing on the sentiment, amid growing speculation that the $1.20 level marks the limit of the central bank’s tolerance for gains in the common currency for now, Bloomberg notes. Additionally, the euro’s inability to stage a significant rally during the most recent war of words between the U.S. and North Korea also raised doubts whether it can re-test $1.20 level soon enough.
The good news for Europe is that a weaker euro automatically meant higher European stocks, and the Stoxx 600 was trading about 0.2% higher at publication time after opening in the red. In terms of sector specific performance, healthcare names sit at the bottom of the pack with Swiss heavyweight Roche trading lower after being downgraded at Exane. To the upside, energy names lead the way higher amid yesterday’s surge in crude prices, with RBC’s downgrade of Total failing to place too much pressure on the sector.
There was no further reaction in Asia trading hours to the most recent threats from North Korea, and the risk-off moved quickly stalled (though it has not yet been reversed). The general feeling in Asia is that this is simply further noise – although as Citi notes some spooky parallels have been drawn with the infamous 1969 EC-121 shoot-down incident, when NK did shoot down a US reconnaissance plane, and Nixon resisted the urge to hit the big red button. Asian stocks fluctuated without clear direction with neither large gains or losses across the the main indexes. The Korean Kospi was modestly lower as won drops following latest escalation in U.S.-North Korea rhetoric. Yesterday's Nasdaq rout pressured ASX 200 (-0.22%) and Nikkei 225 (-0.33%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (+0.05%) and Shanghai Comp. (+0.06%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation.
As the Euro fells, the dollar strengthened against most G-10 peers as recovery from the multi-year low hit earlier this month continues. The New Zealand dollar underperformed after business confidence plunged to a two-year low. The pound briefly supported as EUR/GBP cross breaks through yesterday’s session low. Treasuries edge lower from overnight highs, initially spurred by North Korean risks. Yields marginally higher across the curve, long-end flattens with most participants eagerly awaiting Yellen speech for hints on next policy direction
Meanwhile safe havens such as gold took a breather. The yellow metal and the Swiss franc pared some of yesterday’s gains, which followed North Korea’s declaration it could shoot down U.S. warplanes. WTI crude fell, but remained close to a five-month high after also surging on Monday as Turkey threatened to shut down Kurdish crude shipments.
In bigger picture terms, markets continue to oscillate between risk-on and risk-off stances since early August as tensions simmer on the Korean Peninsula. Equities have edged away from recent record highs as the U.S. and North Korea trade threats, and now an assortment of global political risks look set to further cloud the outlook.
“I think we have a classic case of risk-on, risk-off across markets,” said Saxo Bank’s head of FX strategy, John Hardy. “There is a lot being attributed to North Korea but I think there are a lot of other factors here,” he added, citing the drop in Apple and big U.S. tech stocks and the weekend German elections that saw a far-right party enter parliament.
The yen, which traditionally performs strongly in jittery markets, was beginning to fade meanwhile having gone as high as 111.550 yen to the dollar as gold also dropped off a 1-week high it had hit on Monday. That came after North Korea’s foreign minister said a tweet by U.S. President Donald Trump that “little Rocket Man” might not be around for too long amounted to a declaration of war.
The bond market’s reaction to the latest escalation in tension between North Korea and the U.S. proved short-lived. Yields on U.S. Treasuries and German Bunds fell to a day’s low follow North Korean Foreign Minister’s Ri Yong Ho comments on Trump’s tweet. Both traded back up early on Tuesday in what analysts say reflects a widespread belief that diplomacy will prevail. All other euro zone bond yields were also a touch higher.
A rise in oil to a 26-month high, which bolsters inflation, and an upcoming sale of two-year German debt should also keep upward pressure on yields. Brent crude futures dipped fractionally to $58.85 a barrel, having earlier hit $59.49, the highest since July 2015 and more than 34 percent above the 2017 low. The rise was supported by Turkey’s threat to cut crude exports from Iraq’s Kurdistan region as well as signs that market rebalancing is accelerating. Turkish President Tayyip Erdogan threatened on Monday to cut off the pipeline that carries 500,000-600,000 barrels of crude per day from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum.
Alongside geopolitics, this week’s bevy of central bank speakers continues to offer more clues to the path of monetary policy and the fate of stimulus. It’s Federal Reserve Chair Janet Yellen’s turn on Tuesday, who will weigh in as policy makers continue to disagree on whether to raise U.S. interest rates again this year. Finally investors will be monitoring the ongoing saga that President Donald Trump’s domestic policies have become in a bid to gauge the chances of any meaningful tax reform in the world’s biggest economy.
Economic data include new home sales, consumer confidence. Scheduled earnings include Nike, Carnival, Micron
- S&P 500 futures down 0.01% to 2,495.25
- STOXX Europe 600 up 0.2% to 384.55
- MSCI Asia down 0.3% to 161.66
- MSCI Asia ex Japan down 0.5% to 529.61
- Nikkei down 0.3% to 20,330.19
- Topix unchanged at 1,672.74
- Hang Seng Index up 0.05% to 27,513.01
- Shanghai Composite up 0.06% to 3,343.58
- Sensex down 0.05% to 31,610.25
- Australia S&P/ASX 200 down 0.2% to 5,670.98
- Kospi down 0.3% to 2,374.32
- Brent Futures down 0.6% to $58.65/bbl
- Gold spot down 0.3% to $1,306.87
- U.S. Dollar Index up 0.2% to 92.85
- German 10Y yield rose 0.2 bps to 0.402%
- Euro down 0.3% to $1.1811
- Italian 10Y yield unchanged at 1.814%
- Spanish 10Y yield fell 0.2 bps to 1.622%
Bulletin Headline Summary from RanSquawk
- European and Asian equities traded with little in the way of firm direction as equity markets shrugged off mounting geopolitical tensions
- NZD extended on political uncertainty, as USD gains some ground as markets await Yellen
- Looking ahead, highlights include US new home sales, APIs, ECB’s Praet, Fed’s Yellen, Mester and Brainard, US 2yr note auction
Top Overnight News
- The U.S. has gamed out four or five different scenarios for how the crisis with North Korea will be resolved, and “some are uglier than others,” National Security Adviser H.R. McMaster said as tensions remain high between the two countries
- U.S. Senate Republicans fail in their push to repeal Obamacare; Senator Susan Collins said Monday the bill would cause too many Americans to lose insurance
- French Prime Minister Emmanuel Macron will make proposals for re-shaping Europe that he acknowledges will need German Chancellor Angela Merkel’s support to push through
- U.K. Prime Minister Theresa May’s speech last week failed to break the Brexit stalemate, as the EU demands more from the U.K. if there’s to be any hope of a discussion about trade next month. As the fourth round of talks kicked off, both sides remain divided over when Britain should agree to the size of its bill
- While Austria may have successfully sold a 100-year bond this month, other European countries may be slow to follow suit given the concerns over demand, liquidity and legal restrictions
- The Bank of Greece plans to start stress tests for the country’s four systemic banks in late February with a view to determine by June if they need fresh capital before the end of the Greek bailout program
- CVC Is Said to Mull Options for $4 Billion Drugmaker Alvogen
- Baidu’s iQiyi Is Said to Seek a U.S. IPO at Over $8b Valuation
- Jaguar Land Rover Is Said to Hunt for Luxury Brand Purchases
- Demise of Obamacare Repeal Shows How Far GOP Remains From Goal
- Turkey Warns Iraq Kurds It Can ‘Close Valves’ on Oil Exports
- Nestle Aims to Boost Profitability Amid Pressure From Loeb
- Trump’s State-Tax Plan Could Cause Headaches for 52 Republicans
- Banks Lobbying to Stem MiFID’s Spread Spark a U.S. Client Revolt
- Uber’s New ‘Good Cop’ Tack Will Face Test in U.S. City Tussles
Asian stocks lacked any solid direction after the weak momentum from US where all 3 major indices closed negative due to geopolitical concerns, while the Nasdaq took the brunt of the worst day for the tech sector in over a month. This pressured ASX 200 (-0.22%) and Nikkei 225 (-0.33%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (+0.05%) and Shanghai Comp. (+0.06%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation. 10yr JGBs were relatively flat with only minimal support seen from the cautious risk tone in Japan, while today’s 40yr auction also failed to spur firm demand despite the b/c at the highest since 2015, as this was relatively stable from the prior. PBoC injected CNY 40bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos. PBoC set CNY mid-point at 6.6076. BoJ Minutes from July 19th-20th meeting stated that Japan's economy was expanding moderately and that financial conditions were highly accommodative. The minutes also stated that exports are on an increasing trend and that momentum towards achieving the 2% price stability target was being maintained. RBA's Bullock says high levels of debt leave households vulnerable and that RBA will take this into consideration for monetary policy.
Top Asian News
- Cindat Capital Says Estimates Put China NPLs Up to $1 Trillion
- Euro Hits One-Month Low as Stops Triggered Across the Board
- Iron Ore Faces ‘New Reality’ on Flight to Quality, BHP Says
- Modi Starts $2.5 Billion Plan to Electrify Every India Home
- Singapore Cryptocurrency Firms Facing Bank Account Closures
European equites started the session on the backfoot, albeit modestly so with lingering geopolitical tensions continuing to act as a source of concern for investor sentiment. In terms of sector specific performance, healthcare names sit at the bottom of the pack with Swiss heavyweight Roche trading lower after being downgraded at Exane. To the upside, energy names lead the way higher amid yesterday’s surge in crude prices, with RBC’s downgrade of Total failing to place too much pressure on the sector. From a fixed income perspective, the 10yr Bund trades relatively flat after initial losses have been pared throughout the morning. However, analysts at IFR highlight that paper could be halted at 162.05 which marks the 50% retracement of the 8th-21st September move. In the periphery, yields continue to remain resilient to the fallout of the German election with RBC downplaying the concerns for peripheral markets in a research note this morning. That said, investors will continue to remain wary over potential Catalan-related headlines over the coming days.
Top European News
- ECB Is Said to Start Stress Tests at Greek Banks in February
- EU Dangles Praise for U.K. But Asks More for Brexit Trade
- London Luxury Home Values Set for 20% Rebound Over Five Years
- BNP Paribas Aims to Grow German Revenue 8% Per Year Through 2020
- Monte Paschi Restructuring Will Cut Bank in Half: EU Official
- Pandora’s U.S. September Campaign Failed, Carnegie Says: Ritzau
- Deutsche Wohnen, Vonovia Lead Europe Real Estate Stocks Higher
In currencies, the JPY remains at better levels after yesterday’s comments from the North Korean Foreign Minister in which he stated that the war of words from President Trump has been deemed as a declaration of war. Additionally, PM Abe also called a snap election which will likely be held around late October, as such uncertainty heading into the event could suggest that risks are skewed to the downside in USD/JPY. With regards to the USD itself, the USD-index is broadly higher as participants await comments from Fed’s Yellen and look for any further clarity on the train of thought at the Fed after last week’s meeting very much left a Dec hike on the table. Additionally, broader USD strength has also likely been supported by EUR softness which was initiated by a break of September’s lower in EUR/GBP. NZD notably weaker overnight with NZD/USD slipping 0.45%, as political uncertainties, alongside poor overnight data weighed on the Kiwi. As it stands, the RBNZ are not seen lifting interest rates until Sep’18, according to OIS markets. Focus will be on the comments from the RBNZ where there may be an air of caution given the latest election results.
In commodities, both WTI and Brent have given back a small percentage of yesterday’s noteworthy gains which were largely triggered by tensions surrounding the Kurdish independence referendum. As such, WTI has briefly moved back below the USD 52/bbl level in early European trade. However, markets will likely remain sensitive to any Turkish involvement in the matter after President Erdogan threatened to cut off the pipelines that transfer oil from Northern Iraq. Elsewhere, copper was seen higher during Asia-Pac trade while safe-haven gold was mildly underpinned as geopolitical concerns lingered. Local press reports state that ASX will likely suspend most of Australian listed gold sector if WA government budget with new gold royalty increases is passed
Looking at the day ahead, there is the Conference board consumer confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data. Onto other events, there is the BOJ Minutes for its July meeting. In the US, the Fed’s Mester, Brainard and Bostic will speak. Further, Mrs Yellen will speak on inflation, uncertainty and monetary policy. Back in the Europe, UK’s PM May and EU president Tusk will meet to discuss Brexit, while France’s Macron will outline his plans to reform the EU.
US Event Calendar
- 9am: S&P Case Shiller 20-City MoM SA, est. 0.2%, prior 0.11%; 20-City YoY NSA, est. 5.7%, prior 5.65%
- 9:30am: Fed’s Mester Moderates Session NABE
- 10am: New Home Sales, est. 585,000, prior 571,000; New Home Sales MoM, est. 2.45%, prior -9.4%
- 10am: Conf. Board Consumer Confidence, est. 120, prior 122.9; Present Situation, prior 151.2; Expectations, prior 104
- 10am: Richmond Fed Manufact. Index, est. 13, prior 14
- 10:30am: Fed’s Brainard Speaks on Labor Market Disparities
- 11:30am: Fed’s Bostic Speaks to the Atlanta Press Club
- 12:45pm: Yellen Speaks on Inflation, Uncertainty, and Monetary Policy
DB's Jim Reid concludes the overnight wrap
What happens when you cross a middle aged man with two recent knee operations and a trampoline at a 2 year olds birthday party. Answer a very sore and 'clicky' knee. Over the weekend I went on a trampoline for possibly the first time in around 4 decades and got my timing a bit wrong. I bounced high in the air and then misjudged the landing and over extended just as the trampoline came to meet my leg. It was quite painful at the time and 3 days later it just clicks all the time. I'm hoping I haven't done any damage! As a minimum it’s going to make me very bad at surveillance going forward. It does worry me that the next few years I'm going to be doing more and more silly things to impress my children or their friends or probably their parents! I may as well already book in a surgeon for a few weeks after my first sports day whenever that is!
Bunds bounced better than me at the weekend after the uncertain German election results with 10 year bunds 4.6bps lower yesterday. In both bonds and equities the core outperformed the peripheral (more below). For today, we have a Yellen speech at 12:45pm ET entitled "inflation, uncertainty and monetary policy" to look forward to and a Macron speech where timing is not ideal given that it was billed as a big Euro integration platform 2 days after Merkel's ability to embrace the idea has taken a set-back.
Looking at what’s expected from Macron, the press have suggested that the speech will include plans for a permanent finance minister for the euro area, a euro area budget worth several percentage points of aggregate GDP and a “European Monetary Fund”. As if to acknowledge the necessity of progress, German Finance Minister Schaeuble recently reciprocated, saying he intends to publish proposals for a reinvigorated ESM shortly after the election. We will see if the German election result cautions either. After the dust settles in Germany, the rush to integrate may need to slow. Merkel’s room for manoeuvre on conditionality just got narrower, meaning progress towards integration will likely be slower and the scale of common resources agreed will likely be more limited. For more details, please refer to DB’s Mark Wall’s “Reality check for the Macron Pivot”.
Focusing back now on the German election and its near term implications. As a recap, Merkel’s CDU/CSU remained the strongest party, scoring 33% of the votes, but it’s also the worst result since 1953 and substantially less than 2013 (41.5%). A feasible alliance to govern is the Jamaica coalition between the CDU/CSU, the Greens and the FDP. Looking ahead, DB’s Barbara Boettcher believes markets will face a period of political uncertainty as coalition building will take time. Further, coalition talks are unlikely to turn serious before the elections in Lower Saxony on Oct 15. Thus, it is likely that Merkel will be re-elected as chancellor only just-in-time for the December EU summit. Overall, the risk of a failure of coalition forming is small, in part as German voters demand predictability and responsibility in uncertain times.
This morning in Asia, markets are trading a bit softer. As we type, the Hang Seng (-0.03%), ASX 200 (-0.13%) and the Kospi (-0.39%) is down slightly. Elsewhere, the Nikkei is down -0.40% as the initial optimism from PM Abe’s stimulus package and his call for a snap election has somewhat faded. The new election is likely to take place on 22 October and is opportunistic from Abe in an attempt to capitalise on his growing approval ratings (now c50% vs. c30% in July).
Moving on to markets yesterday now. US bourses softened following rising geopolitical tensions and weakness in large cap tech stocks. The S&P and Dow both closed c0.2% lower following North Korea’s Foreign minister threatening to shoot down US warplanes in any airspace given that “the US has declared a war”. The Nasdaq fell 0.88% (worse day since mid-August), impacted by increased selling in the FANG stocks (down 1% to 4.7% each). Elsewhere, suppliers to Apple and Apple’s own shares were down c3% and -0.88% respectively, after Digitimes reported Apple has instructed suppliers to slow down delivery of some of the component shipments for the production of the iPhone X. Elsewhere, the energy sector rose 1.47% (+9.3% for the month) on the back of higher oil prices (more below).
European markets were mixed but little changed, the Stoxx 600 and the Dax rose 0.18% and 0.02% respectively following Merkel’s election win. Across the region, most indices traded lower though, with the FTSE (-0.13%) and CAC (-0.27%) down slightly, while the peripherals slightly underperformed (FTSE MIB -0.63%; IBEX -0.86%), perhaps a reflection of the rising populist vote in Germany.
Over in government bonds, there was a similar theme with core bond markets firmer but peripherals underperforming. Core bond yields were modestly lower in the US (UST 2Y: -1bp;10Y: -3bp) and also across Europe, with Bunds (2Y: -3bp; 10Y: -5bp), Gilts (2Y: -1bp; 10Y: -2bp) and French OATs (2Y: -3bp; 10Y: -3bp) all down 1-5bp across maturities. Conversely, peripherals such as Italian BTPs (2Y: +0.3bp; 10Y: unch) and Portuguese (2Y: +2bp; 10Y: +2bp) bond yields were slightly higher.
Turning to currencies, the EURUSD fell 0.86%, partly reflecting the uncertainties with Merkel’s new coalition mandate. Elsewhere, the US dollar index gained 0.52% while Sterling was little changed (-0.28%). In commodities, WTI oil rose 3.08% and Brent jumped 3.80% to $59.02/bbl (the highest close since November 2015) after Turkey indicated it may shut down Kurdish oil exports that pass through its territory. Precious metal were slightly higher (Gold +1.04%; Silver +1.08%) while other base metals are also trading higher this morning, with Copper (1.12%), Zinc (+2.87%) and Aluminium (+0.30%) all slightly higher.
Away from the markets and onto central bankers commentaries. In the US, the NY Fed’s Dudley has noted that inflation should eventually pick up and “stabilise around the Fed’s 2% goal over the medium term”. Thus in response, “the Fed will likely continue to remove monetary accommodation gradually”. Elsewhere, the more dovish Chicago Fed’s Evans disagreed and noted that “as the FOMC comes to decision points over the coming months, I think we need to see clear signs of building wage and price pressures before taking the next step in removing accommodation”.
Over in Europe, ECB’s Draghi talked up the economy, noting “economic expansion is now firm and broad based across countries and sectors”, but gave little away on the extent and potential approach on the tapering plans. Notably, he said “we have to be sensitive about the danger of halting a recovery through hasty monetary policy decisions” and that we know “a very substantial degree of monetary accommodation is still needed for the upward inflation path to materialize.” Elsewhere, ECB’s Executive Board member Coeure indicated that the ECB was not “scared” by the prospect of QE exit, but noted that exit would have to be carried out carefully.
Moving onto Brexit, the EU’s Chief Brexit negotiator Barnier has signalled he is unwilling to discuss a trade deal until the UK provides more clarity. He said “what is important now is for the UK government to translate the (PM May’s) speech into a clear negotiating position”. His counterpart David Davis has reiterated UK will honour its financial commitments, but has avoided specifics. We wait and see how the Brexit talks evolves.
With the US congressional leaders expected to release the parameters of a tax framework shortly, DB’s Binky Chadha gauges that little or nothing has been priced in. He expects the fundamental impact of a cut in corporate tax rate to be modest at the aggregate level, but the relative impacts could be large for small vs. large companies. For more details Finally, the latest ECB CSPP holdings were released yesterday. They bought €1.77bn last week which equates to €353mn/day vs. €349mn/day since CSPP started. Overall, the CSPP/PSPP ratio of net purchases continues to run well above average, at 14.8% last week (vs. 19.2%, 13.6%, 12%, 10.3% and 9.6% in previous weeks), which continues to suggest the ECB has tapered credit purchases less than government bonds.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. Over in the US, the September Dallas Fed manufacturing activity index was above the markets’ expectations at 21.3 (vs. 11.5 expected) – the highest reading since February. Within the details, the employment index rose 6.4pts to the highest reading since April 2014 and the prices paid index also rose to the highest since July 2011. Moving along, the Chicago Fed National index was a touch lower at -0.31 (vs. -0.25 expected), although there were positive revisions to the prior month and the three-month average remained close to the zero mark, which suggests an economy growing at around trend.
In Germany, the September IFO business climate index fell slightly to 115.2 (vs. 116 expected), driven by weaker expectations (107.4 vs. 108 expected) and current assessment (123.6 vs. 124.7 expected). However, DB’s Marc Schattenberg does not see the dip in the IFO index as a signal of a marked slowdown in Germany's growth prospects for Q3, as the average reading of the IFO index increased further in Q3 to 115.7 from 114.3 in Q2.
Looking at the day ahead, in France, there is the September manufacturing and business confidence indicators. In the UK, there is finance loans for housing. Over in the US, there is the Conference board consumer confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data. Onto other events, there is the BOJ Minutes for its July meeting. In the US, the Fed’s Mester, Brainard and Bostic will speak. Further, Mrs Yellen will speak on inflation, uncertainty and monetary policy. Back in the Europe, UK’s PM May and EU president Tusk will meet to discuss Brexit, while France’s Macron will outline his plans to reform the EU.