>> the problem you have early in the area -- in the year is the fed. >> markets are underpriced for the potential for an increase in the terminal right. >> destocked market has been asked regnery skeptical of the fed -- the stock market has been extraordinarily skeptical of the fed. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. on radio, on television, not your average tuesday.

yes, goldman sachs out with earnings, but far more, a recalibration and adjustment of the market. the two-year yield out to a 1.04% earlier this morning jonathan: -- this morning. jonathan: here we are in q1, looking back at q4 2021, and seeing real compensation cost pressure hitting the big banks on wall street. tom: we see compensation up 10% at goldman sachs. we will massage that into wednesday as well. the calibration here is a drop in the markets, but not a breakdown in the markets. what is the nuance you have seen their? jonathan: a monster break out in the bond markets. separate the equity market from what we have seen in the bond market. this year your to date, only in week three, we have had a 30 basis point move on tens and 30 basis move on twos. that is a monster move to start the yield. -- to start the year.

tom: lisa abramowicz, your observation on full faith in credit versus the credit market. lisa: right now, credit market still open, but it does tell your points. the big takeaway for me over the last couple days of earnings releases has been have equity traders underpriced how much higher wages will impact earnings? this seems to be the big question coming out of what we've got so far. tom: a briefing from savita subramanian any moment on precisely that topic. i want to go into some thing we have avoided today, which is the quiet period for the fed. quiet periods are enjoyable, aren't they? jonathan: they are wonderful if you are sick and tired of fed speak. the rules are the second saturday onwards before the fomc meeting. we have just gone through that second saturday.

that means this week, no fed speak. tom: let's be loud on the data check right now. 1.01% on the two-year yield. i'm going to look at curve flattening and the 79 basis points. we are not breaking down, but it is an elegant chart to a flatter curve. jonathan: it is fair to say we are breaking down in this treasury market to start the year. capturing that story you are speaking to, a flatter curve, look to germany, just three points shy of breaking through zero. we came through a basis point very briefly. we are negative three on a 10 year nominal yield in germany. it is not just america adjusting per get europe is, too. tom: bank of america adjusting out there. severe to subramanian joins us now, u.s. equity and quantitative strategy at bank of america. i want to go to your research note, where you dovetail nicely the misery index.

when brian moynihan wakes up, he looks at the subramanian misery indicator. these are too big important sectors linked into rising labor costs. savita: absolutely, these are two of the most labor-intensive sectors of the s&p 500, but oddly enough, these are the two sectors were analysts are forecasting all-time peaks in margins by the third quarter of this year, which just doesn't really jive with what we are seeing in terms of tightness in the labor market, compensation expenses in almost every industry, starting to see really strong upward pressure. i think something has got to give this year, and it might be margins. that is where we think analysts are too optimistic. if you think about the corporate misery indicator, this is an

indicator we use to track whether margins are starting to see a squeeze, and whether earnings are going to fall. so far we have seen crisis generally keep up with cost, although we are starting to see that frail little bit. we have seen unit volume sales increase, so those three factors are the ones to watch. when it starts to get problematic is when crisis -- when prices increase too much and costs still creep higher. that is what we are worried about as we move into subsequent quarters this year. i think the good news is a lot of the sectors in the s&p 500 have become very labor like. for example, technology, even industrials. a lot of these sectors have automated a lot of that labor away, but there are still pockets of the market that looked dangerous from that perspective. jonathan: over the last for

years, but over the last decade, i am just wondering, the concentration of that. you have worked through that. work with me on an index level. what is the biggest challenge at the index level? you are at 4600 year end. what gets us there? savita: we might get there today. i think it is hard to be wrong in the entire market when you've got all of the positive forces that have been playing through. easy monetary policy, easy fiscal policy, superlow interest rates, relatively healthy balance sheets of consumers, corporate. you've got strong earnings acceleration off of the global pandemic low. all of those factors are basically slowing down. so i am not bearish on the s&p 500, but i think this is going to be a year where we had that 4600 a bunch of times, and you

will want to pick your spots. so where to pick where to invest this year is very simple. look for free cash flow. this is the most important factor in an environment of tightening monetary policy. in our quant work, we tested all of these strategies of investing, and found that free cash flow is the best way to pick a stock during the first year of a fed tightening cycle. so create a bloomberg screen. sort all of your companies by free cash flow to enterprise value. that would be the way i would look for opportunities. what is interesting, if you give me one more minute on this, when we saw that tech rout the other week. we saw massive turns in the nasdaq. miraculously, the free cash flows within that benchmark grew attractive enough for investors to start to link back into tech.

i think that is the type of market we will be in come over you have to watch these factors. look for free cash flow generation and just be number. volatility is great for markets, for active managers, and i think that is where we are going to be this year. lisa: which is reason why i was a little bit confused about your call that small-cap stocks may outperform large-cap stocks, considering the fact that a number of different surveys have shown that people are worried about their margins more than large companies. they are worried about them handling supply chain disruptions and labor shortages. can you explain why you are more bullish? savita: absolutely. the bottom line is that from a valuation perspective, small caps are trading at a 25% discount to large caps. historically on average, they trade at a 2% premium. there's a lot of stuff going on in the small-cap sector that could be negative for margins, but my view is that is priced in. where it is not priced in is in

consumer companies and industrial companies where these larger companies are trading at close to all-time highs in terms of valuations. so i think you are right that small caps are not generally that great in a labor inflation environment, although the work from our small caps team has indicated that small caps generally outperform large caps during periods of capex acceleration. even the early stages of a fed hiking cycle. i think a lot of these things are coming into play, and on top of that, small caps are super cheap right now. we have not seen this type of valuation discrepancy since 2000. if you bought the russell into thousand and shorted the s&p, you would have made a lot of alpha over the next 10 years. jonathan: interesting call. our best to you and the team, as always. i will be catching up with b of a's david jones in a couple of hours on bloomberg tv. looking over to doing that. there year and call -- there

year end call, 4600. we might close there today. tom: what is important is we show all the difference views here, and even for the uber bulls, it is important to listen to savita subramanian. the ratio on the bloomberg is rx 51. don't do this driving. jonathan: thanks for the advice, for those aggressively trying to work out that function. [laughter] something has got to give this year. we think it might be margins. lisa: that is what i picked up on as well. the fact that she said it seems like people have not factored in how much wage increases have factored into the bottom line is something at a time when there are all of these pressures, and at a certain point, companies cannot pass along the price increases directly to consumers. i think it is a big tension coming out of these bank

earnings. jonathan: what we have seen in the past week, is that a flavor of things to come this earnings season? lisa: that is basically what jamie dimon is trying to indicate. it is not just them. it is all other corporate clients saying they are raising wages much more than expected. when you take a look at real wages, the fact that they are so deeply negative, there is still a lot of work to do to keep up. jonathan: i keep saying it, it is not just about the last 12 months. it is 10 years. it has been a decade of telling the workforce the world over, here is your pay raise in rhyme -- in line with inflation. it's got a one person handle, maybe 2%. thanks for coming. lisa: is this the moment where the power of labor shifts? that has been an existential question underpinning the market. jonathan: i think that has happened. my question is, do we were be that next year, and after that and after that? they are hoping this is it, and they, i'm in the people running these banks and running these companies. futures down 44, down 1% on the

s&p. from new york, this is bloomberg. laura: with the first word news, i'm laura wright. for the first time, exxon mobil has made a long time pledge o -- pledge on emissions. it is a major step for exxon. the company has been slower than some of its rivals to address climate change. major u.s. airlines are warning of catastrophic disruptions from wednesday's scheduled rollout of 5g wireless service. a trade organization urged government regulators to prevent 5g from make implemented -- from being implement it within two miles of where aircraft fly. they are worried that the signals could interfere with aircraft instruments. a study in israel showed that a fourth dose of the pfizer/biontech vaccine was not enough to prevent infection from the omicron variant. researched did say the vaccine

raised antibody levels, but that only offered a partial defense against omicron. late last year, average earnings rose 3.5 percent in november. that was below the increase in consumer prices for the first time since july 2020. blackrock ceo larry fink is heading back at critics who say considering environmental impact in investing is politically motivated. in his letter to ceos, fink wrote, "companies will be left behind if they don't embrace sustainable business practices." global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm laura wright. this is bloomberg. ♪ ♪

♪ >> we expect that measure of labor supplied to continue to rise over the course of this year. that does not mean that wage inflation will go away. it just may not be quite as bad as some people fear. jonathan: seth carpenter, the global chief economist at morgan stanley. good morning to you all. we are down almost 50 on the s&p, a little more than 1%. on the nasdaq, down 1.66%. yields higher on tens, much more so on twos. crude, $85.23 on wti. the story in the premarket is goldman sachs. earnings season continues here on wall street. 370 five dollars and the premarket, down more than 4%. equities coming in a little

lighter on the trading side of the business. the story at the moment on wall street, the headcount up 8%, comp inflation soaring 30% -- compensation soaring 30%. lisa: how much does that color the entire earnings season ahead, and underscore what savita subramanian has said, which is that margins have to give? that is what will start to give when you see these play out across corporate america. jonathan: let's talk about the potential for acquisition. the report from dow jones, microsoft is nearing a deal to buy activision. activision in the sights of micro soft this morning, cording to reporting. tom: this is the innovation we talk about. activision with its own challenges, 9000 employees. we all know the name activision blizzard inc.

this is the idea of a profit-making giant like microsoft acting under the stresses that activision has. jonathan: activision rallying hard. microsoft down a little more than 2%. there could be a deal as soon as today. lisa: it really speaks to this idea of all of the cash some of these tech giants have and what they are going to do with them. it seems like microsoft shares are falling just a touch after the announcement as people try to figure out whether it will be a worthwhile acquisition. jonathan: that is the news from dow jones this morning. microsoft nearing a deal to buy activision. tom: and the overlay of sexual harassment issues activision, a tumultuous time right now. we will have some insight on that later today. right now, this is a really important moment. we are not going to talk about the markets. we are going to talk about the underpinning american economy.

from jeffries, their chief financial economist. i love dear note, and the basic -- i loved your note, and the basic idea is that we need to see out to march, maybe you need to see out to april. how do you glean now what we are going to see in march, which is better news than right now? >> i think it comes down to the household balance sheet. consumption is 7% of gdp, and do consumers have enough firepower to absorb higher prices and ultimately absorb higher interest rates? i think the answer is yes. we all know there's about $2.5 trillion of excess cash sitting on household balance sheets, and we have not put in and that. the reason we haven't is because obviously, consumers are also enjoying very robust wage growth , particularly at the low end of

the income distribution. so to clean when prices are surging, when you have any type of price shock, typically you would worry about the low income consumer that is typically very vulnerable. but if you look at last year, your hospitality employee at the bottom end of the income distribution, enjoyed 50% wage gains. transportation workers, a percent wage gains. they are outperforming -- 8% wage gains. they are outperforming inflation, and that is why you are not seeing any evidence of demand distraction. i think that continues. i think that consumption is going to surprise on the upside ultimately. obviously we are going through a very tricky period right now, and we won't have visibility until the spring, but when i look at the household income statements, it is very hard to not be constructive on the consumer. lisa: it sounds wonderful, but economists and the federal reserve are having to look past

this year to next year, the year after, and figure out, as jon was asking earlier, are these one time wage rises, or is this something that has sticking power that actually comes through in some sort of productive boom for the nation, aside from just predictions of a wage spiral? aneta: i am very constructive on that as well. i think we are headed for the tightest labor market since the 1950's. we have 3.5 million extra job openings compared to what we had before the pandemic. the working age population has not increased at all during that time. if anything, it has shrunk a little bit. within that, the composition has shifted towards 65 and over. that population has increased since the chart of the pandemic. even if i try to make the most optimistic assumptions on labor supply, i still can't find enough supply to meet the

current level of labor demand. we are going to end up with an unemployment rate well below what we saw before the pandemic. so you have a structurally tighter labor market, and out of that, evidence that the phillips curve is steepening. it could be not only steeper than before the pandemic, but steeper than we have seen in the last 30 years. if you extrapolate from the past eight months and overlay that with a 3% unemployment forecast, that puts wage inflation in a 5.5% to 6% range. even if you are very constructive, you still get a floor on price inflation around 3%. so that is what the market is grappling with, the inflation pressures sifting out of the supply chain into the labor market, and the labor market makes it a lot more sustainable.

not 7%, not at 6%, but above 3% for the for siebel future. jonathan: you are look -- for the foreseeable future. jonathan: you are looking for 3%. amazing stuff. anneta markowska, thanks very much. we need to get back to microsoft eying $70 billion deal for activision. activision had a market cap of $50.9 billion, so that is your premium. tom: if you look at any discussion of activision blizzard, and particularly "call of duty," then is microsoft because, i don't other ratios in front of me, but you are playing activision blizzard, like "call of duty: vanguard" i think is phenomenal. i don't want the zombies part. [laughter] jonathan: oh yeah. tom: but seriously, basically, you've got to do it on a micra soft platform.

-- a microsoft platform. jonathan: have you ever seen the tk set up at home? on one side, the bloomberg. the other, "call of duty." [laughter] this is bloomberg. ♪ ♪

jonathan: we have so much to talk about this morning. from new york city, good morning. futures down 1% on the s&p. nasdaq down 1.6%. the deal of the morning. microsoft to buy activision/blizzard for $95 a share, close to a $17 billion deal and would make microsoft the world's third largest gaming company by revenue. activision up to 90 and the premarket from up 37.6%. microsoft down 3.4%. tom: the power for cash and profit. there is no question about it. you wonder if we will see this within the challenges we've outlined today.

we see a strong taking of some of those challenges? we have to follow that through the morning. jonathan: for $68.7 billion deal. unreal. goldman numbers. trading a little lighter. headcount up 8%, compensation up 33%. that is the story. tom: right now jon and i and lisa would be in davos. there are some interviews, some we are not doing. we are thrilled to move from davos to the realities of our pandemic studio to build winters , chief executive officer of standard chartered. the graduate of colgate university is someone with american experience and someone

with important third world living of standard chartered bank. jonathan: very happy to catch up with bill winters of standard chartered. can you take us inside the bank to tell us how difficult it is to keep talent happy, to retain talent, to keep staff on your side? bill: it is a big challenge and the great resignation is touching every industry. what is driving this is lifestyle changes on the back of the pandemic, is at the fact the world is flush with cash and that cash is looking for greater talent? while standard chartered is above the trough levels of attrition in 2020, 2021 it was back to normal in terms of levels of attrition. we needed to pay up but we also found ways to save money in other areas.

our expenses were less flat and we have not reported are for earnings. i would hope we could continue with that trend. i would find the savings to pay for more pricey talent. house -- jonathan: how sticky are these forces? there is a hope in the c-suite that this is a one-off story? how sticky do you think this is? bill: the problems are sticky. there was a situation, the investment banking fees -- is that going to carry on? the fixed income business is also doing relatively well but not as well as they did during the beginning of the pandemic. if profits are up wages will be up. that is the way it works on wall street. tom: how do you lift revenue? how do you lift the share price? within em exposure you have,

with the hong kong exposure you have, what is the strategy to jumpstart growth? bill: that is a big question. we are releasing our earnings and as part of that will be sharing your story with how we accomplished exactly that. we know on the one hand emerging markets, china in particular come is out of favor with investors, particularly equity investors. that clearly has an impact on our surprises. on the other hand, we know these are the drivers of economic growth. china with a still quite low for percent gdp growth in the first quarter, that is pretty tough relative to the 5% to 7% we have been, accustomed to -- we have become accustomed to. for percent is still impressive given the challenges china has faced in the early part of the year. that will extend to asia.

we have been growing consistently for several years. if we couldn't exclude the impact of low interest rates, which has an impact on the banking industry. tom: your website on hong kong says here for good. great. there is no cure more qualified to tell us about the potential move from hong kong to singapore. can you project where banks will be forced to jettison hong kong from other geographies including your singapore? bill: i don't think so. the story is hong kong has been and is ever more so the entry point to china. it is the place capital goes into and out of china. it is a two way street. there been massive flows in china. less so into equity markets. that will balance out over time.

there's been a substantial flow of chinese money out and that will accelerate with things like the wealth connect program which will allow chinese sabers -- that is going through hong kong. hong kong has solidified, i think if anything it is in the strongest position it has been in terms of acting as a gateway for capital in and out of china. singapore also has tremendous advantages. we know singapore is trying to make itself as attractive as possible for not just international talent but also the regional talent and they are doing a very good job of that. this healthy competition we figure is a good thing. we intend to continue have a substantial presence in both markets and will do everything weekend to make each of them more attractive. lisa: where is the biggest growth opportunity for you given

the fact certain companies are thinking about diversifying supply chains globally? bill: the biggest source of growth by dollars but also by percent is china. that will continue to be the case. that sounds counterintuitive. china is under pressure. if we listen to some of the rhetoric, you would think china is on the way down. china is opening up to the rest of the world, to the rest of the region, it is very substantial way. given standard chartered's role as a connector, that connector role is quite valuable for us. i would expect to continue to see china as an outsized contributor to our growth. hong kong as well. hong kong coming off tough years. the 2019 disturbances, the pandemic, the national security law, sanctions and other pressures.

it was a tough 2019 and 2020 into 2021. hong kong is back softly on its feet. -- back strongly on its feet. that is a real driver for us. jonathan: you described yourself as a connector and i want to touch on something delicate. increasingly it is getting more difficult looking at where the west is going and where china is going. the allegations of genocide, the industrial scale human rights abuses, the allegations from the u.k. government, place where your bank is listed. do you ever have to feel like you have to be a diplomat as well as a ceo when you operate in china and what you think people are missing? you are company with a big presence. i'm sure you have to be careful about what you say. at the same time you have these allegations of genocide. that sound like a tough position for a ceo to be in. how do you do it? bill: i did once want to be a

diplomat, but i took a different route, mainly to pay off my university student loans. banking lets you do that. i do not think i would be a great diplomat. i will not try to be a diplomat. the role we play is bringing capital together and bringing ideas together from all parts of the world. we operate in over 60 countries. to the course of history some of those countries have been in conflict with others of those country. some of been in conflict with the u.k. tom: i have one final question. you guys invented diversity. standard chartered bank for decades has lived to diversity. what is your strategic diversity mandate you can teach other executives? bill: i don't know what we can teach anybody. i know what we have learned. we have a broader range of opinions around the table. you serve clients better and

attract better people and make better decisions. because we operate in semi-different countries, we have workforce from the countries and clients that have different buying patterns in different cycles. the key is to try to harness that and bring as much of that to the table as you can. i think we do a pretty good job of that. we know we can do better. i do not think we have anything to teach anybody but we are happy to share our lessons. jonathan: five more years is the answer we often get from jamie dimon. i believe you been there for seven years. are you thinking about succession, or do you think there is more to be done? bill: the day you call me a forever ceo is the day i should head for the door. we have a task to complete. it is not complete. also in our own since we have more we can deliver. i want to get this thing done and hopefully whoever takes over

from me will be taking something that is in good shape. jonathan: any thoughts about going back to jp morgan? is that something you would rule out? bill: i think the likelihood of that is as low as you can possibly get. as great as that firm is, i do not think they need bill winters. jonathan: a timely conversation with bill winters of standard chartered. at a time the economy is pretty decent in the united states of america. lisa: is pretty decent in the united states of america. the idea of hong kong and maintaining such a significant presence and expanding and tried to grow your revenues at a time of increasing tensions between the western world and china and beijing and the people's bank of china raises so many issues about being a diplomat at a time when business and the social aspects are seeming to be in conflict. jonathan: is complex and i'm looking forward to hearing more

ceos and what they have to say about the situation. we talked about paying for talent, let's talk about acquisitions. this was not something that was on my radar this morning. of close to $70 billion deal between microsoft and activision is on the cards. tom: microsoft up to their eyeballs in cash with next to no debt. 3.6% is the weighting of debt to their enormous equity. an expert on this. are you surprised? >> i was surprised anybody wants to get such a big acquisition in this market went the government regulators are not so much in favor of large acquisitions. tom: they are not in favor of large acquisitions, but even more so this seems to be a distribution question. call of duty is content. you play it on a microsoft toy.

will that be the regulatory distinction? >> everything is moving to cloud so the question is what will be the next generation of gaming? it will not be consuls. it will be on different media. the question is what will other companies do? what will apple want to do? what will sony do? lisa: i am struck by the size of this deal. it is an $80 billion acquisition at the same time everyone has been wondering what other big tech companies will do with their cash. does this confirm the future is on the content side of things as people talk about what apple will do given their content development has not been as robust as people like to see? >> that has been the big issue and some of us have wondered why these companies have not bought the videogame makers years ago. we know content is the most

important part of these entertainment businesses. i am surprised this was not done several years ago. lisa: what is next? what is the next acquisition target? >> we have to look at the other videogame companies in terms of electronic arts and who goes after them. now the question is everyone will go out and try to get content. take-two and those companies will be talked about as different combinations. the question is which large company will be allowed to buy them. tom: how do financials on this? i am talking 20 times price to ebita. can you do financial math on this merger? >> i think that is a very good point. you have to not look at it from a traditional point of view. microsoft game past business has only 25 million subscribers and activision blizzard has over 400

billion active players -- over 400 million active players globally. this is a very serious gaming company at this point, not just a cloud vendor or an operating system company. lisa: you mentioned it depends will be allowed antitrust seems to be at the forefront of your mind. at what point will people say these tech companies are accumulating too many things. is there any antitrust browns or does this diversification make it more difficult to argue against these acquisitions? >> before i got on the call with you i was talking to our antitrust expert and she said this is going to take some time to get a lot of scrutiny, both in the u.s. and europe, and it will be very much like the at&t time warner deal back then. she says it has a good shot at a clearance, but it will be

painful. it will not be easy. tom: thank you so much. breaking on microsoft and activision. we will have much more on our bloomberg platforms today. as we talked to william winters on emerging-market banking, the reality is banking is relying on prosperity. david malpass is president of the world bank and we are thrilled he could join us this morning. david, i look at the world bank president, and europe modeling -- you are modeling growth to slow. how fragile is it right now? you and i have modeled stan fischer and other crises. how closed instability in emerging markets are we? david: good morning. i think that is a big challenge. as you slow down, the population growth is still fast in some

countries and if you're not getting ahead people look at it and say what is in it for me and that brings us to the physical insecurity we are seeing in some parts of the world. the solution is to grow more and get higher per capita income as well as health programs, vaccinations, education, all that goes with good development practices. tom: is the institutional integrity there, and across the street the international monetary fund, are these nations listening to you as they struggle with the financial challenges they have? david: many countries do listen but a big part of the challenge is the global environment. it is very unequal. people at the lower end of the income scale are not doing well because the wealth is concentrated. that is a big problem. you can put in better policies in your country and still not see much in the way of results.

that is a big problem. lisa: given the backdrop where the recovery has been slower and painful, how concerning is it that a wall of debt maturity is coming up for a lot of these nations? david: this is a challenge. it was discussed in the last two years. frankly the progress has stalled on that. as we look at 2022, the payment from the low income countries are going to be $35 billion. that is the payments on principal and interest, which is way beyond the resources of the countries. that creates added challenges because they need the money for other things like fighting the pandemic. lisa: cow concerning is it that admits the backdrop you have seen consistent dollar strength, you have seen persistent inflation in base goods. paint a scenario for how this transpires and the last of 2022.

david: we know worldwide inflation subtracts from people on fixed income and the bottom end of the income scale. that is true in developing countries. as the prices go up they do not have enough money for food, for basics, for education. in the developing world the education, because of the school closures, education has slipped backwards. the ability to read and write. those are concerning. that gets us to the end point. if interest rate hikes start, that will be a double whammy. inflation in interest rates are a challenge. it would be better if the central banks look at the capital allocation around the world and look for better ways to allocate so not all of the money goes the biggest corporations. your previous story was about microsoft cash.

tom: you are as qualified as any world bank president in history to advise on dollar dynamics. does the world bank, and the poor countries of the world, take africa as one example, how desperate are they for a weak dollar? david: the strong dollar puts pressure on them because their currency is weaker and capital does not want to flow to them plus prices go up more than they are in the united states. i would not characterize it as desperate for a weak dollar. what benefits everyone is when parentheses are stable and that starts with the dollar and the long-term stability is the strongest support for development. the countries want that, but right now as we go into probable interest rate hiking phase, that adds to the dollar, it makes the challenges bigger for the

developing countries. as i say, the world needs to look at the capital allocation and ask why is so much of the money going to the rich end of the scale? tom: how do we amend that? it is one thing to comment. how are we proactive for a new capital allocation away from buying more apple shares? david: you have to think about small businesses. that means floating-rate money. that means money at the short end of the curve. we have this oddity where the government is supporting existing businesses, existing people and demand, and not so much the supply side. that is problem one. on the central bank side they have four tools, they are only talking about two tools. interest rate hikes, that hurts people at the short end of the

curve. short interest rates go up first, and even more so in developing countries. they are also talking about tapering the balance sheet. there are two more tools. one is the duration of the central bank holdings and one is regulatory policy. i call it post monetarism. we are in a heavy regulatory world. right now it penalizes small businesses. having a focus by fiscal and monetary policy you want to support smaller businesses so they can help the supply chain, that is critical and could help worldwide. lisa: given these changes will take time to be implemented, you think the developing world complex can deal with four rate hikes from the federal reserve this year? david: it will be really challenging. we see it in country after

country from the political side and in the news. it would help of the central banks said what the strategy is. i think they should be looking at the duration of their assets and saying they will stop buying so many assets at the long end and have more of their mix be capital favorable, small business favorable. that helps developing countries. tom: thank you so much for joining us. david malpass, world bank president. the news flow is extraordinary. it is not the tuesday after a three-day weekend in america. lisa, where you want to start? lisa: i want to talk about the empire manufacturing index, it was hugely disappointing. it was expected to increase, it actually decreased. it declined almost 1%. this is a read on the omicron disruption, the labor market shortages come on supply chain,

on inflation, all the issues people have shrugged off. tom: may be liz ann sonders with the chart of the morning. the idea of how slow restaurants were in 2020. restaurants recovered and liz ann showing they rolled over and the last couple of weeks, that goes into the economic call. lisa: is not surprising given the fact that semi people had covid in so many people were able to show up for work. i keep going back to the ellen zentner call. will some of these disruptions accelerate fed action? will they be prompted to heighten -- to hike rates sooner and tighten policy more because it is leading to inflation and more labor shortages which is pushing up wages? to me that is the uncomfortable narrative emerging. tom: we are slaves for data and we will see that been a quiet week.

i think we have to end as we set up in from out of bloomberg television and radio through the morning with an extraordinary deal. i think you emphasized the size of this transaction of microsoft. we are benumbed by it. that is an enormous number. lisa: $68.7 billion in all-cash. what are they going to do with that? what else will they buy? it is so far above the market cap of this videogame company. they are paying a massive premium at a time when the growth is in content and we know all of our kids play video games all the time and we do not care anymore because of the pandemic. that seems to be the way of the future. tom: "pol of duty: vanguard" had criticism for the zombie element , which i think was unfounded.

you look at where $60 billion clicks in on the s&p 500. maybe apple will buy capital one financial today. we will have to see on that. adam posen of the peterson institute is coming up. this is bloomberg. ♪

jonathan: what a start to the week on wall street. from new york city, 30 minutes away, your equity market down hard.

"the countdown to the open" starts now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york, we begin with the big issue. a bond market shakeup. >> interest rates are rising. >> pricing fed interest rate hikes pretty well. >> a significant inflation problem on their hands. >> a march meeting is very much live now. >> more rate hikes on the table. >> a question of sin the fed follow-through. >> the fed minutes planted the seeds that perhaps will see balance sheet runoff.