Blain’s Morning Porridge Dec 8^th, 2025 – Markets, The Global Economy and the ‘26 US Midterms.

“It’s all about the economy, stupid…”

This week will see the Fed ease rates, stocks will rally on happy retail buying any dip, and everyone will go into the holidays joyful… Except they won’t. There is so much still bubbling under the hood of the US economy that can go “bang”. Don’t watch the USA – watch China for clues.

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World Cup 26: Scotland gets Brazil? C’mon…. Again? Dang. Looked at costs y’day… don’t think I’ll bother.

This week’s big event will be the Fed Meeting – where the US central bank is expected to ease US interest rates a further 25 basis points. Although recent data (when available) has been “mixed” – some reports suggest US jobs are stable, while others point to weakness – a cut is 80% likely.

The expectation is the stock market will love it. It will convince retail investors to keep “buying the dip” and they will pile back into Tech stocks and even Bitcoin. US banks generally expect to see US stocks rise 10-20% higher next year on the prospects for higher earnings, the effects of this year’s Big Beautiful Bill tax cuts, the expected easier rate environment, (including Trump’s new Fed puppy Head being supportive of Trump’s demands for lower rates), the economic boost from AI infrastructure, and how AI is going to transform the workplace…

With the US economy bouncing along on the back of tax cuts and lower rates, home prices becoming more affordable on lower mortgage rates, and the confidence exuded by the strength of the stock market, what’s not to like about America’s ongoing global economic strength and power?

On the other hand… the big news this morning is out of China.

Following the much trumpeted Trump meeting Xi in Korea, and Trump’s return waving a small piece of paper saying he had “deescalated the trade war in our time”, Chinese exports soared nearly 6% last month, beating expectations. Imports were lower than expected. The US trade negotiator was swiftly on the wires painting it as a Trump win, saying China is abiding by the terms of the agreement. However, others have asked what’s happened to the much anticipated China orders for US soyabeans? Oh, they are still under negotiation, apparently.

Does the increase in exports mean the Chinese are suddenly unleashing a pent-up torrent of goods into the US market and we can look forward to renewed US/China trade driving the global economy? I read a couple of reports that said there was a scramble to rebuild inventory stocks, but then I checked the US Port Data on AI. Apparently, imports into US freight terminals during November are still falling – which maybe because US retailers imported everything for the holiday season earlier this year. Nope.

Turns out the Chinese already pivoted their exports. They were well aware of Trump trade risks, and how he would push for US manufacturers resellers like Apple to scale down their reliance on Chinese manufacturing. The USA is not China’s only market. As a result, this year Chinese exports to Europe were up 7%, while exports to ASEAN are up 13%! America matters less. China now has a larger trade surplus with Europe than North America.

Trump’s promise to US voters was to punish China and other nations for destroying US manufacturing and stealing US jobs – that’s the story he sold them, and the justification for Liberation Day tariffs. He was going to restore the wealth and prosperity of US workers that had been “left behind” through a MAGA manufacturing and economic growth renaissance. How is that working out? Because that will determine how the future plays out.

Trump has a vision and he knows his narrative well. He’s travelled round the world securing “massive” direct investments into America from foreign partners – and all that will be invested in US factories paying US workers… When? Tomorrow?

It takes a presidential cycle to build new plant – as Trump is showing, good things happen for a strong president. What happens if he’s a weak lame duck? Tomorrow for Trump comes in the Mid Term elections in November 2026. How will he do? Time for yet another James Carville quote – he was Bill Clinton’s political strategists. He famously said: “It’s the economy stupid.”

There are a number of big Macro risks to the Trump message:

The first is inflation. Even if the economy is growing, workers are not feeling better off. They’re still being told its foreign exporters that paying tariff costs, but the reality of higher component costs (supply chains will remain unstable as the US tries to detach from China), and retailers now letting tariffs work through the shop prices, means higher prices are the new reality. Fewer goods going to the States, and individuals being asked to pay  import duties on goods on their doorsteps as packages are delivered, are the new reality.

The second is rates. The Fed can cut rates to zero – but the market will still demand a decent real return over inflation, and given Trump’s failure to address the escalating budget deficit (when did you last hear anyone trumpet the success of DOGE in cutting costs) there are doubts on debt costs. And as China posts the Yuan as a dollar alternative to dollar trades in its growing ASEAN markets, that’s less global dollars to shore up Treasuries. If rates move down slowly, then the lower mortgage, loan and credit card costs Trump is hoping will create consumer/voter feel-good will not materialise – whoever he puts into the Fed!

The third is the stock market – a symbol of confidence in the economy. It is massively weighted towards Tech stocks, over 50% of the US market (including the Mag7) is AI related, or AI Adjacent as the analysts now say. If the AI bubble were to pop…? The reasons to expect it may are rising. There is the circularity of demand and lending around Nvidia basically funding clients to buy its chips. There is the mismatch between demand for compute and the available of power, and water to cool data centres, and as has been written about many times in the Porridge… what if the Chinese are doing AI cheaper and almost as good?

Pull all these bits together and the outlook for the USA next year ahead of a highly polarising, divisive series of elections, and you have potential distraction. Then spice it with Trump’s falling voter approval (which would still beat any European’s leader!) and the rising fault lines in the now polarising Trump Republican Party – the Isolationists, the America Firsters, the Neo-Libertarians, The MAGA faithful, and the Rockbridge Network. (The NYT defines the new Republicans as National Conservatives, Postliberals, Claremonsters, and the Hard Right Underbelly…) It’s all terribly interesting…

Meanwhile… in order to improve everyone’s Christmas, today’s top tip…

After a lovely long holiday lunch with chums yesterday we sat back and were persuaded to watch With Love, Megan Markle’s Christmas Special. It’s absolutely fantastic. Its brilliant. It’s got to be a piss-take. It’s so absolutely bonkers bad it can’t possibly be serious. I think it was massively overscored at Zero% on Rotten Tomatoes, the review site. Who knew we Brits put sweeties in our Christmas Crackers, or the Ginger Whinger likes that Christmas favourite Gumbo (wtfit?) but doesn’t like Beetroot or fish?

If anyone ever needs a reason to turn Anti-Monarchist… this is it.  (Best moment is Meeeeegaaaaan doesn’t know what a holly leaf looks like as she practices to hand paints a cookie plate… and it then cuts to a very obviously not her hand painting perfect holly leaves in close up…. Her guests all looked like Stockhausen Syndrome victims… someone send in Seal Team 6…!)

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