Blain’s Morning Porridge Jan 7th, 2026: Geopolitics, Markets and Economics – Are They Still Connected?
“The barometer read “Fair” yesterday, but the Shipping Report says, “Gale Imminent”.
Markets have opened strongly in 2026 and seem remarkably sanguine towards rising geopolitical instability and shocks. They’re buying a rosy outlook of rising profits, lower rates and costs, and are blithely unconcerned by the risks of destabilisation from conflict or competition.
I got a call from a Morning Porridge reader y’day, demanding to know why I’ve been so fixated on events in Venezuela this year… “What about the markets?” he asked. Very fair question. A succession of record highs in stocks suggest all is well! He thinks Venezuela is nothing more than a distraction, but there appears to be a massive disconnect between the commentariat’s reaction to the Geopolitical Shocks we’re seeing, and the market’s complete and utter lack of concern about them.
Take a glance at markets and its looking bright and breezy – fair sailing weather as the barometer would tell us. Stocks are broadly higher anticipating a fine year ahead. Bond yields are generally lower, looking forward to lower rates and declining inflation. Nothing to worry about… Apparently.
Yet the news flow is dominated by events in far-off Venezuela, and now Trump’s careless threats to seize Greenland – with military force if necessary – with nary a concern for what that will do for European stability or as a market for American goods and services. The Chinese are licking their lips in anticipation of boom times to follow. Funny how the UK’s weather is set by systems born in the Caribbean and how the North Atlantic Drift and Jetstream over Greenland direct the storms that batter us.
The trick to connecting the big picture of geopolitics, macro and micro economic factors that drive markets (and I not claiming to have mastered this yet in my brief 4-decade market career), is catching the signals that matter amidst the tumult of activity:
Think of the market as a ship’s chief engineer in a busy engine room surrounded by noise and hubbub. He manages his domain through his senses; listening for that sound warning cogs, shafts or valves are out of kilter, smelling burnt oil indicative of friction where there should be none, to see something not fitting right, tasting something metallic in the water warning of a leak, or to sense an unfamiliar vibration in the heartbeat of the boat. If he misses the signals, then the ship stops.
Market’s feel a lot like that. I sense all is not right. It’s not just AI valuations, the prospect of a popping bubble, massive IPOs from SpaceX and OpenAI on the horizon (my Spidey-senses are screaming these are bound to mark a market top), or the question of who buys Treasuries, but there is something more. I can feel vibrations and judders that should not be there. The global economy is plunging forward in one direction – towards further conflict and instability, while markets are profoundly watching themselves and hi-fiving success.
Going back to my metaphor of a Ship’s Chief Engineer – his job is to make the ship move. But he doesn’t know if the captain is about to steer the boat onto a reef, into an Iceberg or into the centre of a massive storm.
Perhaps that’s the relationship between markets and geopolitics? How good a captain is Trump? (Rhetorical question.) As a yachtsman I focus on where I’m going, how to get there safely, and then how to play the winds to achieve these objectives. As a result, I’m not convinced that’s how the current market/political model is working…. And not just in the US – European politics are as bad, just not so blatantly bad.
I’m going to stick with my model of the global political economy: that stability is critical, economics are real (watch data), geopolitical relationships between nations foster or stall economic activity and trade, and political incompetency will (eventually) be punished by markets – as long as they sense what’s going on.
Therefore, I still see three big themes for 2026.
The first is Trump. Sorry, but you can’t ignore his influence on the macro picture and how he is shaking not just the tree, but the whole forest. America’s 250th birthday is coming up, but with the mid-terms, the rising domestic revulsion towards his methods, and his failure to address economic, medical and cost of living issues… the year is shaping up for renewed political noise and conflict in terms of the lead in and result of the November Midterms. Does that mean Trump will further seek to distract us with more drama? Siezing Greenland and wrecking Nato? And don’t forget, he is intent on capturing the US Federal Reserve as well… lower rates, rising inflation, broken alliances and global tension… not a recipe for stability. But Trump and his regime are just one factor.
A second is Europe – facing the risks of Russian aggression, seemingly caught in a gloop of economic decline, and smothered by social welfare, bureaucracy and broken infrastructure – while cursed with weak politicians. It’s struggled to address the Russian threat, and suddenly its feeling vulnerable and betrayed to a US stab-in-the-back. Could it make or break Europe? How will Europe play the multiple populist political threats in France and Germany, or the rising prospect the UK’s Keir Starmer and Rachel Reeves will be deposed following an electoral debacle in May, and ongoing slump?
The third issue is China – as I wrote earlier this week, how does China reconcile its current economic crisis and need to export more with the face-saving ambitions of Emperor Xi regarding Taiwan. How willing and able will China be to seizing opportunities, and does that mean an increased risk of major Chinese policy shocks or mistakes? Maybe we need to think outside the box regarding China.
The above are the big themes that will drive global relationships, thus trade and the already risen risk of conflict.
Alongside the themes are the equally influential market imperatives of technology, progress, valuations, and competition. And separately there are also the critical economic and monetary direction factors including currencies, bond yields, inflation, data and debt. To understand what’s really happening, you have to pull them all together… Simples…
I suspect this may be the year it becomes increasingly clear that US technological exceptionalism is no longer a thing – that China is successfully challenging for leadership and market dominance. We’ve seen it as BYD replaces Tesla as the pre-eminent EV manufacturer and it may well happen in AI.
In terms of the effect of inflation and yields the jury is still out. Perversely, the Supreme Court outlawing Trump’s tariffs could yet be a lucky card for him, calming the embedded inflationary impulse we’ve been waiting to see. If inflation takes off in 2026 – as it well might – then get ready for it to trigger all kinds of consequences.
And if all the above sounds a bit gloomy, then remember my Mantra No 2: “Things are never as bad as we fear, but seldom as good as we hope.”
Out of time, and back to the day job…
Bill Blain
CEO – Windshift Capital
Author – The Morning Porridge
Partner – Shard Capital
Special Advisor – Spitfire Strategic Capital