>> welcome to bloomberg markets. >> u.s. markets are extending the slump we saw on tuesday, registered as the biggest global routes since 1999 for the first day of trading in the year. we are looking at the s&p 500 down almost .5 percent. the nasdaq 100 down .7% and we are looking at yields back on the rise once again, 4.34 on the two year, three basis points higher.

brent crude also on the rise about 3% higher on the day above 78 once again. we hit that 79 handle once again. jon: let's talk about the commodities sector and the opera performance the oil market given those lingering tensions but we have strong productions. one of the major players in canada, that stock is moving higher by about 5% right now and staying with the commodities sector, we are seeing weakness in the gold giant. it has been a weaker day for bullion but bloomberg had that exclusive reporting that there's been some behind-the-scenes conversations with shareholders gauging whether it might come together with first quantum, the copper player which has had major struggles with their panama project. we will continue to want that story play out on a day when there's generally speaking a lackluster view on equities. health care has been an interesting one to watch, whether it is a name like merck

on. eli lilly continues to outperform so perhaps a shifting of capital as we continue to roll through the year. investors in the last couple of days have been avoiding technology stocks and today, they are avoiding bitcoin and we have seen some of those crypto stocks giving back some of the recent gains. you have coinbase under pressure at 2%. sonali: a lot of questions about that fcc approval and that is regulation we see in the bitcoin sector, crypto sector but we will talk about banking regulation as well because morgan stanley's outgoing chairman, james gorman, the outgoing ceo co. executive chairman says it is healthy and there will be changes to that well watched basil three endgame -- perp basel iii endgame proposal. >> it was a proposal that i was say was extremely aggressive.

it will not go through in that form. if it did, i think it would have very, very negative consequences for corporate lending across this country which is not what you want. >> if the republicans take the white house in 2024, whether it is donald trump or another contender, do you expect that this tighter regulatory environment will just fully unwind? james: it is too hard to predict. you see the pendulum swing and we swung the lighter regulation. i think it will swing back so it is heading back to more balanced regulation and that is where it should be. i am all about balance. the banking system should not be deregulated. that would not be -- that would be a nightmare. if you over regulate, they cannot grow. that does not serve communities well. you need prosperous, thriving banks to provide lending products for small businesses and consumers. >> we are less than one year away from a spate of bank

failures. to the extent that there's still fragility's in the financial system, what are they? james: there were three banks that got it wrong. i said that publicly. they made choices that were the wrong choices. it was not complicated. they got cleaned up and folded into other banks and you move on. people keep telling me we are having a banking crisis. no, we are not. it was a crisis for shareholders and employees. it is not a crisis for the market. the core banking system is in rude good health, to use a british russian. >> regulators are also very concerned about some fragility's there. it was not too long ago that morgan stanley lost almost $1 billion in the wake of the collapse of archegos. does there need to be more safeguards on the non-bank system? james: honestly, there's too many participants in the non-bank system to say yes or no. you would have to go subset by

subset. we talk about payments, private credit. you know, go through each of the pieces of it. but there are always risks when you are dealing with leveraging a financial system but if you don't have leverage, you don't have lending so it's a balance. i'm always back to there is a balanced solution to most of these baits and you can find it with >> >> thoughtful discussion with regulators. the cost of leverage is higher today than it was a couple of years ago. where do you think interest rates go headed to the end of the and what do you think the markets are to look like through 2024? >> they go down. >> how far down? james: no idea. i thought that it's unlikely the fed would cut rates this year but inflation has moved down pretty materially quickly. it has now become more likely sell first half of the year, i suspect nothing. back half of the year, they could move a couple of times but the key point is we started this journey with inflation at 10%, rates at zero, unemployment at

3.5% and my objective was to get us to 4, 4, and four. 4% unemployment. 3% inflation, 5% in rates, see .5% and unemployment so rates will come down. >> do you think the economy is in an all clear? do you think the economy will survive this year in good shape? james: the economy is fine. there is this obsession with the r word, recession. you get imbalances between unemployment rates and economic growth. the economy is doing fine. i personally think it is unlikely we will have a recession. very unlikely we will have a hard landing, but we will see but the odds are clearly in favor of a soft landing on the fed has done a great job. sonali: we are going to discuss morgan stanley's interview here with bloomberg's catherine doherty because of course, it is a sea change. we are looking at one of the longer tenured bank ceo's

stepping down, handing off to a new guard on wall street and how much does this signal a broader change in strategy at morgan stanley and others? what kind of environment are they capitalizing on here into 20 34? >> what struck me is his mention of culture. clearly, that is very important to morgan stanley but that will be at any bank on wall street. if you think about the big six, when you hear of -- about city going through the restructuring -- citi going through the restructuring, it's going to matter for those that either decide to stay, coming in, or have left. a lot of people might choose to leave because they don't want to go through that restructuring. you think about jp morgan. jamie dimon developed a culture and that one is a little more straightforward at this point. they are moving ahead, really building, and their dominance is continuing to spiral so i think that was morgan stanley, this is a chance for them to continue

the culture. starting from a pretty stable level. it is just a matter of can he continue that momentum? can he continue these the ability -- the stability? jon:jon: what about on the capital issues specifically? you had the executives that made their way to washington not that long ago and clearly in the conversation, james gorman highlighting some of those failed banks and essentially saying one offs. the regulators themselves have been very concerned about what could happen going forward. what is that conversation going to look like going forward? katherine: it's funny, his answer to that topic, to that question, he started it with a laugh, saying is signaled to me that he does not think that this was a system failure at all. he referenced that it was these three banks specifically that experienced the troubles but that he does not see any signs

of instability with the rest of the system so that was the one that takeaway i got from his answer and really from the rest of the ceo's on wall street when they were up in front of the senators earlier last -- later last year. they were very straightforward about saying that this is going to be a net negative for the consumer especially in the u.s. if the proposal goes through as planned. now, gorman, he seems to think, and we have heard other ceo's say similar comments about the proposal, likely to be pulled back slightly or at least that is probably a wish so maybe they can speak this into existence but they are really talking about the negatives that could come from what is out there currently. sonali: how much competition do they face as these regulations hang over them? another company that has just hired -- you're talking about people staying at these banks if they are stable or moving somewhere else. those market makers are the somewhere else.

are they taking up more share in trading and do you see them taking more share in areas they have not before? katherine: is a great question. when he think about the banks that are going to have them make the decision to exit some businesses, you have citi exiting. anytime a big player like that exits, it is an opportunity for smaller players or more nimble players to come forward and grow their business. i don't think that day, if you talk about citadel securities or any other market maker, would say that this is us because we are not as regulated as the banks, taking advantage of that. they are saying this is a liquidity problem that we are solving if you have less trading or less availability with banks exiting. we are going to step forward and fill that void. that is how they are painting that picture so it really remains to be seen when you have more of those announcements of exits, whether it is from mortgages or other businesses that the banks are deciding.

this is not as possible for us -- profitable for us. who is the more noble player that can benefit from the exit? sonali: thank you so much for your time. and tomorrow at 1:00 p.m. here on bloomberg television, i will sit down exclusively with a global cohead of m&a at goldman sachs. coming up next, i'm going to talk about disney because executives continue to draw support to stave off pressure from billionaire activist nelson. they find support in an unlikely place, another activist. the stick with us. this is bloomberg. ♪ i'm going to sell my life insurance cuz i don't need it anymore. my kids are grown, my wife is great, let's settle up the score. it's time to travel to paree, spend retirement happy. call 877-sell-easy. 877-sell-easy.

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>> bob iger is a

phenomenal executive. he led that company through so many cycles and is a gifted leader so it is a great pleasure to work for them but it is not for me to judge. jon: james gorman speaking earlier with sonali about bob iger. disney and focus today after winning the support of a key shareholder in its battle with activist nelson peltz, bob iger working out that deal with another activists investor. disney and exchange will share information and meet with value act. another investor, blackwell capital, supporting three directors who would champion bob iger's strategy for the company going forward. ed ludlow joining us to put all the pieces together. i'm sure this is a great disney plus original series here that could be in the works down the

road from all this back and forth. walk us through these chess moves. ed: iger has the support. they put out a joint statement in which they basically said at a time where the big tech companies are coming for media companies, disney is best placed to leave the industry. we don't know the size of the steak and his neighbor bloomberg has reported it is large and growing and then you have nelson pulse. he wants to put himself on the boards and address what he sees as overcompensation of disney executives, misalignment of governments. he zeroed in on the failures of the last 18 months. the botching of succession. the most curious part is blackwell. it's a tiny active hedge that has a kind of minimal steak. i asked the question earlier and i put it back to you guys -- is

this kind of enough to appease peltz? doesn't seem like it based on the response. sonali: he tried to say i have not joined the board yet. is there anything that can be done more imminently to appease the activists? ed: he has embarked on this cost-cutting exercise, targeting $7.5 billion of savings. the criticism of the bob chapek era which preceded iger returning is that they were losing billions of dollars. they had gone all in too hard on streaming. iger is doing this cost-cutting plan. the board governance and members of the board seems to be the central battlegrounds. disney has nominated james gorman along with your me derek and value act backs them on that. blackwell has three completely different board nominees that

they have put forward in disney's committee is reviewing those. it goes back to the same idea. peltz still doesn't see any of the ideas he wants addressed addressed and wants to see himself on the board. jon: we will watch the next chapter on that one cannot ed ludlow joining us on the disney story. coming up, details on the fed's internal discussions of interest rate cuts. more on that, coming next. this is bloomberg. ♪

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i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy. jon: this is bloomberg markets. we heard from the richmond fed president today talking about a soft landing for the u.s.

economy, looking more likely, but not certain. we are going to get a look at the top of the hour at what the fed was talking about behind-the-scenes at the last interest rate decision in december. we will have full coverage of those fed minutes coming up but let's dive into what we are thinking about. the chief u.s. economist joining us for that conversation. it is interesting. with the commentary about the odds of a soft landing on the rise right now, i found myself wondering, especially here in canada, where some already think we are in recession, how often can you have an environment where rates are going down and you avoid a recession? >> i would say that one of the biggest consensus trades and views at the start of the year is that we are going to have this really rosy, soft landing. i'm not saying that it is wrong. i'm just saying that today, markets leave themselves very little room for error and to your point, there continues to

be this disconnect between what people are doing and how they are feeling about the economy. so you know, today, economic activity looks solid. growth has a lot of positive momentum but there does continue to be this sentiment overhang where people feel more pessimistic than they are acting. sonali: just a week ago, we were talking so much about the s&p 500 hitting new highs, the nasdaq 100 intraday hitting a record at one point and we have fallen off course this week so far. is the negative sentiment starting to overtake the market a little more? lara: 2023 is going to be a hard act to follow especially in publicly traded markets. the s&p 500, you know, is just i think the perfect example of a goldilocks scenario being priced in. the risk markets run and this speaks directly to the minutes that we are going to get, they have priced in twice the number of rate cuts that the fed

signaled with their dot plot. this is a pretty big ask in a world where we don't have a recession. there is no real urgency from the economy to cut rates and i think markets are waking up to the fact that they have really priced in a really strong economy and also a lot of rate cuts. that's a little bit inconsistent and i think we may see some of that and the fomc discussion today. sonali: even if it is with the fed's own dot plot, how much does the potentially acceleration of certain inflationary forces throw a wrench in any of their views? lara: this is one of my off consensus views. everybody talks about how fast inflation has come down and it's true, so much better today than it was obviously at the peak in the middle of 1.5 years ago but the reality is that we are still very uncomfortably above the fence target.

i don't think the fed is going to have the room to maneuver that most of the market things. and we get a few upside surprises in inflation and let me tell you, the fed is going to have to think be much more cautious cutting rates than even they would hope that they have the room for. jon: do you think that if the market selloff were to continue, that might take some of the pressure off the fed to try to push back from that big run up we were seeing at the end of last year to sort of square these differences? lara: i agree that there is a financial euphoria component to this. if we get such a strong and enthusiastic financial market response, it does mean that the fed probably backs off a large number of rate cuts. so there's going to be a little bit of a dance there. i think the primary focus of the fed is going to continue to be

growth, inflation, the unemployment rate. we are going to get a jobs number on friday. i think it is still going to be really solid. from my point of view, there is no urgency to cut rates given a strong economy. the employment rate still pretty low and let's face it, inflation that but a lot of pieces of the inflation puzzle, not back in that 2% box. sonali: we have been talking about the impact of these potential rate cuts relative to market expectations on the stock market. but what about the bond market? how much more volatility do you expect this year given we have seen such a bit come back into rates? lara: gavin: i think -- lara: i think we are going to see a lot of volatility and my forecasts for the year is to have the long-term interest rate stay in this range of 3.5% to 5%. that is a big range and you know, we are still i think not talking enough about the fact

that the treasury is facing almost $10 trillion of debt that matures in the next 12 months. i'm not saying they are not going to get it done but the supply dynamics of the treasury market i think does start to matter and that is something we just have not seen for a very long time. i don't think it is a coincidence that last year at the very end of the year when the treasury -- the 10 year hit 5%. the treasury changed its funding mix. we see upward pressure on long-term rates. even if the fed does find the room to cut rates a couple of times. in a non- recessionary rate cut scenario, it's a different outlook. we are getting a more classic recessionary rate cut environment. sonali: larry -- jon: very helpful as always. the chief u.s. economist joining us and we will have full coverage of those fed minutes coming up but for the broader market story right now, we're

continuing to see investors reassess after essentially what ended up being the biggest global row since 1999 in the first full day of trading yesterday. first and alabaster, am -- for sonali basak, i am jon erlichman. this is bloomberg. ♪ sports tech like this smart fitness mirror. i'm also mr. leg day...1989! anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. i go through a lot of pants. before investing carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com.

>> from studio two at boebert headquarters in new york, i am romaine bostick alongside scarlet fu, kicking you off to the closing bell on this wednesday afternoon and we start with a look back at the last fed meeting, ending on december 13. no decision on rates but a big decision on the dot plot. kailey leinz is in washington right now with a readout of the fomc minutes. kailey: chairman powell said at the press conference last month that rate cuts were discussed

but the min