The Christmas Lights are beautiful. You can really smell it. Christmas is in the air. Air is also an air of panic. In every shop window, a sale sign. Marks and spencer is offering 30 off. Don the road, 50 off. More on why retailers are slashing their prices and why ubs says the clothing retailers have hit the panic button. Caroline, we will get back to you very shortly. , lets have a look at these equity markets. We are seeing higher equity markets as europe loses aaa s tatus. Does that really matter . Stocks saw their biggest rally in nearly three months. Higher by door to voice a deutsche divorce a borse and merck. We will see stocks and indices go off the board today. All agility will be the name of the game. The dollar index rises. Fx volatility is dropping. Pimco does not expect the dollar to rise much. The euro dollar drops by a quarter of one percent. It has had a good run. A couple of stocks and headlines. 25 . Oil down. They have a big venture with london and there is a delay in production. They have just dropped back. Bae down 4. 2 as their deal falls apart with the uae in terms of the typhoon fighter jets. Those are your markets. Lets put them in context for you. Our next guest, a little bit more on why he thinks that. Andy lynch is a fund manager over at schroders. Ray to have you with us. You are the christmas grinch. I am afraid so. I am here to deliver lots of bad news to lots of people who have been really happy. This paper program, there has been this initial good reaction. Why is that . It is a bit paradoxical to what we have seen before. Is it about the guidance we have given . Taper,re starting to Interest Rates are going to stay low for a very extended period of time. My concern is that after the thering runs off, acceptability to control the longer end of the Interest Rate curve is hit. Will be buying more than 50 of it. Is that the biggest risk, longer bond yields breaking out . Absolutely. That is the big risk. The market starts to reassert control over longerterm Interest Rates. So we see a selloff in fixed income. Not at the short end. The fed and the ecb can control that. We just had the bonds up there. Trading this also morning, just a smidge lower. Where does it move to . On 10 . 5 that hurts the mortgage market. It absolutely will hurt the mortgage market. The u. S. T do much in it will not hurt the people who have already got their mortgages. It reduces the opportunity to refinance and makes it harder to buy a new home. If you already have got your mortgage, 30year bonds do not matter to you at all. Your payments are fixed. The correction will come in u. S. Equities, you say. What is the time of that . How do i prepare for this correction . Timingwise, i think we will start seeing it early next year as Companies Start coming out and giving guidance for 2014. I think those expectations are going to disappoint what the markets have priced in. We have had a fantastic year this year. A lot of it has been driven by multiple expansions underlying earning your rates. Expectations are getting higher and higher. When they Start Talking about 2014, they are going to throw a bucket of cold water over everyones cheer. You are doom and gloom. I am. China is building up as a story. We are seeing interest rise to levels that we have not seen in six months. Is that something you have talked about the past couple of days at the office . Are you concerned by china . Chinese authorities will manage to keep this they are still in a very controlled economy. If they want to bring Interest Rates down, they could put liquidity back in and bring Interest Rates at down. Actually, seeing Interest Rates go up in china is not a bad thing. We have been saying for a long time that china needs to start rebalancing away from massive levels of overinvestment and towards the domestic consumption story to put its economy on a more sustainable footing. , ifnterest rates are up returns on investment become less attractive, we should see Companies Getting less funding and consumers being able to spend a little bit more. The time, that rebalance is chinese economy. It will not be easy. There will be a few skids along the way. I think that it will be better to keep the car on the road. We might have a few slightly scary bumps as we navigate the path. We will be back shortly. Andy lynch, the fund manager at Schroder Investment. Here is a look at what is coming up on the move. Uae dropped its fighter. And why are bankers feeling sidelined . That in a moment. To go before christmas, what is the sentiment on high street . ,e will go to caroline for more live in the center of london, where shoppers are not hitting the stores this early in the day so far. I am manus cranny in london on this is on the move bloomberg television, radio, streaming on your phone, tablet, and bloomberg. Com. There is one stock that is on the move. 8. 6 at the moment. This is one of the Telecom Operators in france. They have challenged the traditional model. One of the protagonists in the French Market ready to start an internet price war. Who loves that phrase . The consumer, not so much if you are a company. Value margins are 20 versus 40 . The Telecom Space is one to watch. From telecoms to defense. Bae systems is in the middle east. To the unitede arab emirates has fallen apart. Hans nichols has the latest from berlin. But start with the uae deal. What happened . Why has it fallen apart . We do not know. Pricing, presumably. This is over the euro fighter typhoon. He comes on the heels of David Cameron being in dubai for the error for the air show, really promoting british planes brought. Is a separate deal, the saudi deal. That appears to have stalled on prices. It has not totally fallen apart. The question with the uae deal, is this just them driving a hard bargain . To jam down dassault from france . Theyll also fielded another offer from boeing. This is just one giant arms dealing bazaar for who can send any kind of fighters to the United Arab Emirates cheaper. They are trying to play these three defense contractors off each other to get the lowest price. Either way, for the moment, it is bad for bae. Calls went out this morning on the share down anywhere from 3 5 . We will see where this deal was priced in and what the stock does when it opens. Lets talk about saudi arabia. Bae holds their discussions with the saudis. Is that a more important deal . The stock is now down 3. 6 . Moving, 3. 6 . K is that could be both on the uae deal, but also on the saudi deal. The saudi deal is bigger, 72 jets. That means about 7 million. Bae has said that theyre pricing and ability to get this deal done have to do with their billion pound share buyback. If they do not finalize this deal by the end of the year excuse me, by the beginning of next year, they could say that earnings per share is down 6 7 . We will talk analysts and find out why it is diving. We will get you a little bit later in the program. Still with andy lynch, fund manager from Schroder Investment management. , as anobal basis investment manager, do you like defense . Do you like American Defense . Do you like these kind of stories . The Defense Sector is one we are under way. Underweight. 2 reasons. Austerity, reduction in government spending, less money to go around for defense. More to fight over. The second reason is that the countries where people are still they are uae, saudi, extraordinarily savvy negotiators because they have a Domestic Defense industry they need to support. They can get the International Guys up. Off, areffering 10 you going to do 12 off the deal and then you go back and say, can you do 15 . Nobody makes money at the end of that negotiation process. I think defense is a difficult market to be in the to be in. Lets talk about retail. We will catch up with caroline. She is at the heart of the retail mecca. The retailers are pressing the panic button. Talk to me about retail. Surely it is an area that i want to be in. How do you feel about retail . If you are online, you can still do extremely well. If you are a pure play high street retailer, things are getting very tough for you. Online offers greater convenience. It also offers greater price transparency. A high streetas retailer, to earn decent margins by selling something more expensive than someone around a corner is eroding as the internet makes things more transparent. , a greatike john lewis website, good stores, integrating online and offline, i think they have a very good offer. If you are a standalone just on high street, life is going to be tough for you. Lets talk about 2014. ,alk to me about the portfolio the Asset Allocation as you go into 2014. Where is my waiting in terms of equity . Be bullish on equities . Should i avoid bonds . Viewam talking about my rather than the whole view of the company. You should look at equities for the longterm. I think you will still make good money only equities from here. Athink we see a correction the start of the year as current expectations are too high. You have a better chance to put money into equities during the First Quarter than you do now. At the moment, hold that money in reserve. Even in cash. It is not that exciting. Riskse not taking pricing that you are with equities or bonds. Rex you say asia. Excludes japan. Japan, despite that what Prime Minister abbe is trying to do with his program, they face extraordinarily extraordinary headwinds. Demographics is one of the uncertainties in investing. You can look at people in my play and say, in 10 years time, you will be more overweight. If you are japan, youre working age population is starting to shrink. That puts a headwind in your ability to grade gdp. Formerly, lots of young people were coming through and joining the labor force. Your ability to generate growth is that much higher. Valuations are still attractive on a global basis. When we talk about the industry groups, we have touched on some. There are some core equity groups that you favor. For example, you like Food Producers. Lets talk about those. About demographics. What is going to drive Food Producers . Level, itfundamental is more mouths on the planet, more food required. , you have the concerns around diversification. Iss arable land that effective for growing food. We need to improve productivity out of each and every farm. People soon people who supply fertilizers, seed. Looking at the whole supply chain through production. Rex people who are giving the capital equipment, the seeds that they need, all the way to the Food Producers and processors who package it up and put it on our shelves. There are opportunities all along that chain. If you can find people who have niche, a strong brand, or in the case of supermarkets, a good price positioning, those are areas where investors can take solace. We have seen 17 billion worth of deal this week. Bayer, astra on the move. What is your play on that as a sector . Has faced healthcare has faced two things. An older population requires more health care. That, pricingof negotiations get tougher. Areas where the demand is growing significantly. Example, obesity. We are coming up to christmas. We are all probably going to put on a little bit of weight over christmas at a global level. We are all becoming slightly heavier, slightly more overweight. Sadly, areabetes, going to be a big trend. Not a pound will be missed between now and next week. You are a better man. Thank you very much. That is andy lynch from Schroder Investment. Up, two thousand 13 was the euro some blockbuster m a deals. Why are the bankers still feeling sideline . More on that when we return. We are on the move. Here are some companies on the move today. Everbright bank fell in hong kong. This is after the lender raised 3 billion in the citys biggest first timeshare sale this year. Shares of the agingbased vendor fell nearly 4 during morning trade. Bae systems says that the United Arab Emirates stop talks to buy the euro fighter typhoon. This is weeks after David Cameron lobbied for the combat plane in dubai. The gauche nations with saudi away via with saudi arabia are also dragging on. German phone unit with kpn plus, said to face a probe by authorities. They are concerned that they may gain too much wireless spectrum. There will be an indepth review into the deal today. It has been a disappointing year for bankers. Despite some of the blockbuster deals, like vodafones sale of its Verizon Wireless stake. Here to give us a little more overview on m a in 2013, matt campbell. Where is the recovery going to come in m a next year . That is a good question. This year has certainly had some blockbuster transactions. The 130 billion vodafone verizon deal was the biggest. When you look at the figures, we are flat on 2012. Terms, relative to the boom years, we are way short of that. The recovery has not come yet. It may come in the new year should the m a market follow equity markets, which are very healthy, and economic growth. But that has not happened yet. What is holding them back . Will we see a rush to the doors in 2014 . Are couple of Things Holding us back. Confidence is the thing that everyone talks about. When you are a ceo or a chairman, you look at the last two years of Economic News and say, maybe this is not a time to be taking a big risk if i can avoid it. I will buy back shares, are the cash in the bank, do anything else. Learned their lessons, 10 years of exuberance and now theyre talking about giving money back. What is going to be the best and worst . I think technology and telecom will remain very active. A huge amount still to do in that sector. Hearst is a good question, probably banking because regulators do not want to see big tanking now. Year. Hope you have a good well done. It is matt campbell, our deals reporter at bloomberg. Up next, he joins me to talk about blackberry earnings. We will ask him about the smartphone trend going into 2014. Keep it right here. \. Welcome back to on the move. I am by describing in for francine lacqua. These are the Bloomberg Top headlines today. Banks are said to be racing to betray their competitors to avoid possible eu fines. The penalties relate to rating a Foreign Exchange markets. Ubs and barclays aborted more than avoided fines by blowing the whistle on benchmarks. More banks are said to be volunteering information on fx markets. Chinas money market rates surged as fund injections by the central bank failed to alleviate the worst cash crunch since june. The sevenday purchase rates rose by 100 basis points to a sixmonth high. Gauge of liquidity in the financial system. European union has lost its top Credit Rating from Standard Poors. It citedgs agency says its worst financial profile for the downgrade. S p cut its long term rating to aa plus run the coveted aaa. For more on that story, lets had to a between. He is live from berlin. How muchs the eu do we actually care about this . I think we care about this because i think the timing of the downgrade coming from s p is absolutely impeccable. What is happening at the moment, they eu leaders are meeting in brussels. This is an absolute message to eu leaders the way i am looking at it. Two reasons for the downgrade one is the overall Credit Rating of the 28 eu member nations has declined. Lost their aaa Credit Ratings. Say iner reason is, they our view, the eu budget negotiations have become more that theys, singling consider there could be some rising risk to the support of the eu from some of its member states. If you remember, last year, this time last year, the eu summit was also about the budget contentions, the budget negotiations. They were fighting over miniscule amounts of money. That is something that Standard Poors has picked up on right now. Ok, david, thanks for that. Lets dig a little bit of a look ahead. Factory earnings are out later today. What are the smartphones transfer 2014 . Hussein kanji, great to have you with us this morning. How bad is it going to be for blackberry . This is a question that everyone is asking. No one really knows. Blackberry hasnt done a very good job giving chinas guidance. We dont know how bad it actually is. We know that they are going to lose cash. Probably 800 million. They are probably going to use about lose about 1. 6 billion of cash. They have about 2. 6 billion on the books right now. That is a lot of cash out the door. We dont know what is actually working inside this committee right now. The flagship products are definitely not working. Your specialty is the tech space. At what stage do investors say enough is enough . You need to make hard decisions. Will they give john that time . Time is the biggest question. He had about 18 months of cash when he joined the new financing certainly helped. They had to do all these inventory writedowns because the phones arent selling. Their customers are leaving so the department of defense which is a major flagship customer is thinking about abandoning. Pfizer Just Announced that their employees can switch over to the iphone. This turnaround is going to happen very quickly if it happens at all. None of us really know if they can pull this off. This is an ailing company in many ways. He doesnt seem to be drawn to the fact the idea of breaking the company up. That doesnt seem to be in the rhetoric. It is not in the language. He wants to stay in the handset business which is a moneylosing business for the company. Analysts have look at this and they say if blackberry breaks up, it would give consumers virtually all the cash it has. That is not a viable option