Saward Dawson > Wealth Advisory Wrap > Monthly View > July 2025
A look back at last month and an outlook for the months ahead
What we liked
- The number of job openings in the US (JOLTS) came in at 7.39 million. This reading followed 7.2 million openings recorded in March and came in above the market expectation of 7.1 million.
- May Nonfarm Payrolls in the US rose by 139,000 in May. This came in slightly better than the market expectation of 130,000. The better read was encouraging as some signs of weakening in the US jobs market have recently begun to emerge.
- US core consumer prices (CPI) rose slightly less than expected in May. The annual change came through at 2.8% versus the 2.9% expected. While this remains above the US Federal Reserve target, the disinflationary pulse should encourage a potential to cut rates further in the US.
- ECB cut its deposit rate by 0.25% to 2%. The ECB has lowered borrowing costs eight times, or by 2% since last June, seeking to prop up a euro zone economy.
- Chinese retail sales jumped 6.4% from a year earlier in May, sharply beating analysts’ estimates for a 5% growth and accelerating from the 5.1% growth in the previous month. While the consumer has been relatively weak in China, this may be an initial sign that stimulus by Chinese officials to increase consumer demand may be beginning to show up in the economy.
What we didn’t
- Continued policy uncertainty regarding the imposition of trade tariffs. This is negatively impacting consumer and business sentiment, which is leading to apprehension on consumer and capital spending.
- US ISM Services PMI report for May. The report indicated that ISM Services PMI decreased from 51.6 in April to 49.9 in May, compared to analyst forecast of 52. Numbers below 50 show contraction and service make up ~80% of economic activity in the US.
- US retail sales dropped more than expected in May, weighed down by a decline in motor vehicle purchases as a rush to beat potential tariff-related price hikes ebbed. Retail sales fell 0.9% on the month versus an expected drop of 0.7%.
- US housing starts in May fell sharply by 9.8% MoM to 1.256 million units, the lowest level since June 2020 and far below the market’s prior expectation of 1.35 million units. The housing market continues to be hampered by high interest rates in the US.
Base Case
Our view of the most likely scenario for markets over the coming months, for which our portfolios are currently positioned.
76% Probability
The global economic landscape remains cautious in the short term, with mixed regional data and heightened uncertainty due to ambiguous U.S. tariff policies. While international corporate earnings have generally met or exceeded expectations of late, and markets have responded positively to the temporary 90-day pause in reciprocal tariffs, sustained volatility is anticipated as markets navigate significant geopolitical shifts and evolving monetary and fiscal policies.
Our forecast of subdued inflation in the first half of 2025 has materialised; however, we expect global inflation (excluding China) to remain elevated compared to the past decade. This uncertain inflation trajectory could introduce further volatility in the latter half of the year, especially as markets anticipate continued disinflation.
The U.S. administration’s recent tariff announcements have introduced additional downside risks to our base case. Conversely, the proposed “big, beautiful bill” appears more stimulatory than initially forecast, particularly when considered alongside ongoing deregulation efforts. Together, these developments support a constructive medium-term outlook for economic activity, albeit with persistently elevated government deficit risks.
Central banks, especially the U.S. Federal Reserve, face a challenging balancing act. Policymakers must decide between easing financial conditions to support growth and system stability, risking currency depreciation and higher yields, or continuing to tighten monetary policy to combat inflation, with the potential for economic contraction and stress in the bond and banking sectors. The direction taken by central banks will be a critical driver of market performance in the coming months.
We remain flexible in our positioning, with the capacity to shift defensively if needed and maintain cash reserves to capitalise on any market dislocations. Recent global liquidity growth offers some reassurance, though the pace has been uneven and remains a key variable in maintaining a constructive view on risk assets. With strong demand expected for both new and rollover debt through the remainder of 2025, continued liquidity support is essential.
Accordingly, while we remain constructive on global economic activity and risk asset performance—particularly inflation hedges like precious metals—the risks to our base case would increase significantly should the U.S. tariffs be fully enacted or if substantial liquidity injections from the People’s Bank of China or the U.S. Federal Reserve fail to materialise, as we expect.
Nonetheless, we anticipate further liquidity injections over the coming months, which should lend medium-term support to financial markets. While short-term volatility is likely to persist, we believe this liquidity environment will be broadly supportive of risk assets through year-end.
This backdrop supports maintaining a positive medium-term bias toward growth assets, albeit with the expectation of continued elevated volatility. A weakening in employment indicators or a retrenchment in central bank liquidity support would trigger a more defensive posture, likely characterised by higher cash allocations. Overall, our asset allocation will retain a pro-growth tilt, underpinned by constructive views on corporate earnings and global economic activity, while tactical decisions will be guided by macroeconomic developments, valuations, and central bank policy.
Bear Case
Our worst-case scenario for the coming months, which we are prepared to position for should conditions deteriorate.
10% Probability
Global consumer demand is weakening more than anticipated, with the U.S. economy showing signs of slowing and limited recovery elsewhere. If U.S. tariff policies prove more aggressive and enduring than expected, inflationary pressures could rise, potentially reversing the recent global trend toward interest rate cuts. Such developments may provoke retaliatory trade measures, further suppressing global trade and economic growth.
A resurgence of banking sector stresses, akin to those observed in March 2023, driven by credit market volatility, could tighten lending standards further. Rising concerns over sovereign debt sustainability may prompt bond markets to demand higher yield premiums, exacerbating financial stress. Any stall or decline in global liquidity growth would compound these pressures, potentially weakening currently robust employment conditions.
Further geopolitical instability may disrupt supply chains and energy markets, intensifying inflationary pressures and forcing central banks to maintain tight monetary policies. Simultaneously, rising wage demands and housing costs may become embedded, further pressuring corporate margins as input and debt servicing costs rise amid softening demand.
This confluence of tightening financial conditions and elevated inflation could compel central banks to maintain or increase interest rates even as economic activity deteriorates. A premature withdrawal of central bank liquidity could destabilise financial markets, which have come to rely heavily on such support. Coupled with more constrained government spending than currently anticipated, due to elevated debt levels, this would likely erode consumer confidence and spending, especially in the absence of strong wage growth. Such a scenario would see a deterioration of corporate and household balance sheets from their current healthy situation.
In China, continued fragility in the property sector raises the risk of a deflationary debt spiral. If recent stimulus measures fail to support consumer confidence and property prices, high debt burdens may continue to suppress growth. Such a scenario would have negative implications for Australia, given its reliance on natural resource exports to China.
A sudden escalation in geopolitical tensions or a major credit event stemming from excessive leverage in a rising yield environment could trigger a rapid and widespread sell-off in risk assets. In this case, we would move decisively into defensive positioning, prioritising capital preservation through elevated cash holdings and reduced equity exposure. Renewed stress in systemically important global banks could also trigger liquidity events with materially negative effects on global growth.
Should these risks materialise, we would adopt a more defensive strategy, rotating away from equities and into cash and defensive sectors. In a scenario of rapidly rising bond yields, a more selective approach would be required, focusing on companies and industries best positioned to benefit from such a shift. Defensive allocations would likely include increased exposure to healthcare, consumer staples, and utilities, alongside elevated cash reserves.
Bull case
Our most optimistic view for markets over the coming months.
14% Probability
In a more favourable scenario, developed economies surpass growth expectations as policy clarity improves. Easing supply chain constraints, improved labour market dynamics, and rising productivity contribute to subdued and declining inflationary pressures. Diplomatic progress leads to shorter and less impactful trade tariffs, while regional geopolitical conflicts remain contained.
Lower input costs, combined with strengthening demand, drive resilient and possibly accelerating corporate earnings growth. Profit margins remain elevated or improve further, bolstered by the adoption of new technologies such as artificial intelligence, leading to more efficient use of labour and higher corporate profitability.
A shift away from fiscal austerity, characterised by increased government spending, catalyses faster economic expansion. While this may reintroduce some inflationary risk, nominal growth likely outpaces inflation, creating a favourable environment for risk assets as nominal economic growth accelerates due to deregulation and fiscal stimulus from governments.
In Australia, sustained government spending supports domestic growth. Globally, coordinated stimulus measures—including recent actions by China and Europe—paired with healthy household and corporate balance sheets, significantly accelerate recovery. Increased leverage, if managed prudently, further amplifies this trend.
Should central banks resume efforts to keep interest rates below inflation and enhance liquidity support, financial markets could see a renewed uptrend. Such conditions would likely stimulate further demand for growth assets in a low or negative real rate environment.
In this scenario, we would maintain a growth-oriented asset allocation with minimal cash holdings. Should leading indicators begin to surprise positively, we would likely shift further toward cyclical sectors that are more leveraged to economic growth.
Stock in Focus – Salesforce Inc
Investment Thesis
Salesforce Inc. is the world’s #1 provider of customer relationship management software, which is essential infrastructure for companies in today’s competitive landscape to enhance customer relationships, implement more effective marketing campaigns, improve productivity, drive scale and growth. We have initiated a position in Salesforce based on:
- Accelerating Operating Leverage & Cash Flows – significant margin expansion and improving free cash flow generation, driven by disciplined cost control and a focus on profitable growth.
- AI-Driven Product Differentiation – generative AI is being embedded across its product suite—including Sales Cloud, Service Cloud, and Slack—creating a more intelligent, automated CRM ecosystem.
- Attractive Valuation & Durable Growth – Trading at a discount to long-term historical EV/FCF multiples and Price to Earnings growth ratio, a gap we expect to narrow as Salesforce continues to display above consensus top and bottom-line growth. Salesforce offers a compelling entry point given improving fundamentals.
History
Salesforce, Inc. provides customer relationship management (CRM) technology that connects companies and customers together worldwide. Salesforce, Inc. was incorporated in 1999 and is headquartered in San Francisco, California. Today it is the world leader in front-office customer management, with a market capitalisation of USD$255 million.
The company offers Agentforce, an agentic layer of the salesforce platform; Data Cloud, a data engine; Industries AI for creating industry-specific AI agents with Agentforce; Salesforce Starter, a suite of solution for small and medium-size business; Slack, a workplace communication and productivity platform; Tableau, an end-to-end analytics solution for range of enterprise use cases and intelligent analytics with AI models, spot trends, predict outcomes, timely recommendations, and take action from any device; and integration and analytics solutions. It also provides marketing platform; commerce services, which empowers shopping experience across various customer touchpoint; and field service solution that enables companies to connect service agents, dispatchers, and mobile employees through one centralized platform to schedule and dispatch work, as well as track and manage jobs.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.
Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.
