Our CEO, Jens Nordvig, was featured in Jonathan Shapiro’s latest article, “The market’s data king reveals what will drive Trump’s Treasury”, published in the The Australian Financial Review.
In this piece, Jens shares his insights on the profound shifts in financial markets, including the evolving role of government bonds, geopolitical dynamics, and the resilience of U.S. productivity fueled by AI investment. He also dives into how these trends will shape strategies in 2025 and beyond. Jens’ expertise in connecting macroeconomic data with market behavior continues to position Exante Data at the forefront of financial research and innovation.
When Danish economist Jens Nordvig left Nomura in 2016 to set up his own research firm he counted on the support of a small group of clients to get him off the ground.
Among them was Key Square, a New York-based macro hedge fund overseen by George Soros protege Scott Bessent.
Early on Friday morning in Sydney, Nordvig tuned in to Bessent’s confirmation hearing – he is President-elect Donald Trump’s pick for treasury secretary of the United States.
Bessent’s comments on the deficit (spending is out of control), the dollar (it must retain reserve status) and tariffs (they won’t be inflationary) were precisely what the market wanted to hear. Long-term US bond yields drifted lower in a show of support.
“Scott Bessent is somebody who believes in free markets. I don’t think he is in favour of aggressive tariffs just for the sake of it,” Nordvig told The Australian Financial Review that morning, halfway through a two-day visit to Sydney.
But today’s world is different to 2016, when Trump first assumed power. Back then, tariffs served the purpose of lowering the trade deficit. This time, the primary objective is to contain China and neutralise the geopolitical threat it poses.
“We didn’t have Russia and China and North Korea and Iran ganging up together in a hot war when Trump was in office the first time,” Nordvig says.
The other profound difference is that Trump will be sworn into office for a second term with a fiscal deficit of 6 per cent of GDP compared to 3 per cent in 2016.
There’s simply less room to borrow and spend, and global bond markets are once again enforcing discipline on profligate governments by cranking up borrowing rates.
Bessent is a keen student of economic history, Nordvig says, and is well aware of the perils of failing to appease the bond market, particularly as central bank buyers turn to sellers of bonds.
“Private institutions have to absorb not just what the government is issuing, but also what the central banks are selling,” due to the reversal of quantitative easing, Nordvig says.
“They want more yield for it. They’re not going to do it without any proper compensation.”
Nordvig believes there are profound shifts in attitudes toward government bonds that he’s observed from talking to clients and from analysing capital flows. Global sovereign debt levels have reached a point at which they’re now forgoing their status as safe-haven assets in the eyes of investors. Political upheaval in Western economies is also playing its part.
Nordvig says it’s no longer safe to assume that Western democracies will be ruled by centrist governments as more extreme parties gain support and power. There is no longer an anchor for fiscal, economic and foreign policy.
“That just opens up like a whole new dimension of risk that investors need to think about.”
And so the range of outcomes for long-term bond rates has increased. The benchmark US 10-year rate, which underpins valuations of all assets, could crank up to 6 per cent or collapse to 2 per cent.
The philosophy of market data
Nordvig, who made his name at Goldman Sachs as a currency strategist and spent time at hedge fund Bridgewater, founded Exante in 2016 with a focus on analysing every bit of data it could find to identify insights.
“When you look at official data, it’s always philosophical. Do you go with the data or do you say it’s misleading? Our approach is holistic: to get as much data as we can get our hands on and derive a signal from the totality.”
The firm was hyperactive during the early stages of the 2020 COVID-19 pandemic as Nordvig and Australian-based Grant Wilson raced to source data and extrapolate it.
“Forecasting COVID is way easier than forecasting the economy,” he says. “All the epidemiologists were always forecasting some kind of worst-case scenario, as opposed to what is actually going to be the likely trend.”
That experience taught them the value of immediacy. Nordvig says the firm has an obsession with capital flows, tracking movements right down to the fund level.
That has helped it to better identify shifts in behaviour and what they mean for markets. Gold is one example.
“When real interest rates went up, gold used to tank. But now we’ve had a situation here in the last two years when real interest rates have gone up and gold has exploded.”
Nordvig says the data points to increased demand from Asia, in particular China. It’s not all jewellery and central bank reserves.
“There’s a lot of people who then have accumulated Chinese currency balances that don’t really want to hold Chinese currency, so they hold gold in China instead.”
In fixed-income markets, he says the actions of Japanese investors are particularly important given their size and the fact they are less equity-centric.
They’re dumping their holdings of French bonds: a reflection of increased credit risk where none was previously assumed.
This represents the early phase of a transition in which investors are reconsidering sovereign risk.
There may be some unexpected winners in this shake-up. Fixed-income investors could look more favourably on emerging market borrowers that are demonstrating fiscal discipline.
Currently, fiscal discipline is what the bond market is demanding of the US and its incoming Treasury secretary.
One way to manage the deficit is to grow the economy faster than the debt burden.
But the Trump administration’s intention to crack down on immigration and assert itself geopolitically comes with costs, which means other sources of growth will have to compensate.
It is doing so from a position of immense strength. Nordvig says there is “incredible truth” to the narrative around US exceptionalism as productivity outpaces the rest of the world.
The next leg of that exceptionalism is in technology, and an investment boom in artificial intelligence, which Nordvig describes as an “extraordinary source of growth resilience”.
That is unrelated to Trump and is being fed by the technology giants such as Microsoft, Meta, Google and Amazon, which are engaged in an AI arms race.
Microsoft, for instance, will invest $US80 billion ($129 billion) this fiscal year on data centres powering AI.
Nordvig believes a full percentage point of economic growth can be attributed to AI-related investment. That can be the difference between an economy that is sputtering along at a 1.5 per cent growth rate and one that’s in good shape, expanding at a healthy 2.5 per cent.
What is clear is that higher interest rates aren’t putting the brakes on this investment, which is being financed out of cash flows, and perhaps explaining the broader economy’s resilience.
“They can make these enormous investments without having to ask for permission from some bond investors. It’s quite an extraordinary situation.”
Given their incredible financial firepower, Nordvig says it’s difficult to bet against American tech long-term.
“The actual capital investments that are needed to have an edge in that space are so enormous that there’s a relatively small list of companies that have capacity to do them.”
Nordvig is also reluctant to bet against the US dollar even though its valuation would typically elicit caution.
“We have a situation in which the Fed is probably not going to cut rates aggressively and global growth is challenged … Chinese growth is weak and German growth is horrible.
“There are a number of reasons why the [US] dollar can remain very resilient. We will need to see something totally new on the growth front to really question that.”
And Australia? Nordvig says investors are having a hard time getting excited about the economy in the absence of a resources boom.
“People are searching for where the dynamism is going to come from.”