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With Trump’s trade war taking a toll on US corporate Capex plans, investors have woken up to corporate balance sheet risks, Morgan Stanley analysts have mentioned in their latest note.  

Key points

  • US import tariffs are mainly paid for by US companies, depressing their profit margins. Hence, it should not be surprising to see US capex plans being cut radically, which should soon translate into moderating labour market conditions.  
  • Financial conditions look set to tighten imminently as warning signals have been flashing intensively.
  • Replace Australia’s highly indebted household sector with ambitiously leveraged US corporates and we would find two economies with great similarities, especially in the case of their foreign funding dependency.
  • The AUD trade weighted index (TWI) has lost 24% from its 2013 top while the USD TWI has gained 37% from its 2011 low.