China: Fiscal support set to re-accelerate – Standard Chartered

FXStreet Insights Team FXStreet

Standard Chartered economists Carol Liao and Hunter Chan note that China’s fiscal support softened in Q2 2026 after strong Q1 activity, leading to a sharp slowdown in infrastructure FAI similar to H2-2025. They expect the government to accelerate infrastructure spending and local government special bond issuance in H2-2026, using existing quotas and potentially front-loading 2027 issuance if exports or housing weaken further.

Fiscal pace and infrastructure outlook

"The China government’s fiscal support softened in Q2 after a strong start to the year. In April-May, overall broad spending fell 5.7% y/y even as broad revenue growth accelerated to 2.2% y/y, shrinking the broad deficit to a three-year low. While subsidies to households are evenly distributed through the year, investment spending seems to have moderated, markedly reducing infrastructure FAI, in a pattern similar to H2-2025."

"The government might have fine-tuned the pace of fiscal implementation intentionally. Q1 activity exceeded market expectations, supported by front-loaded fiscal support and strong exports. In April-May, general public budget spending fell 2.4% y/y, despite the 6.6% y/y rise in revenue."

"Under the government funds budget, local government special bond (LGSB) issuance slowed notably in Q2. Land sales revenue continued to deteriorate in Q2, constraining local governments’ spending capability; LGSB funding could have partly offset this drag if issuance had not slowed."

"We expect fiscal support to re-accelerate in H2, particularly through infrastructure investment. Given comfortable fiscal room in H2, we expect the government to accelerate issuance to fully utilise the existing quota before considering further stimulus."

"If exports weaken unexpectedly or the housing downturn exerts a greater drag on local government funding in Q3, policymakers could respond by front-loading the 2027 LGSB issuance quota or authorising additional local government bond issuance from the previously unused debt quota."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD remains depressed near 0.6950 after RBA minutes

AUD/USD attracts follow-through selling during Tuesday’s Asian session, looking to extend the overnight rejection slide from 0.7000, or a two-week top, following the release of RBA meeting Minutes. The US Dollar retains a bullish undertone near its highest level since April 2025 as energy-driven inflation risks keep December Fed rate hike bets firmly on the table. Adding to this, geopolitical risks further underpin the safe-haven USD.

USD/JPY extends retreat below 158.50 as intervention risks loom

USD/JPY is dropping below 158.50 in the Asian session on Tuesday, snapping a two-day winning streak and pulling back from an over two-week top touched the previous day, despite Japan's soft PPI inflation print. Bulls turn cautious amid speculation that authorities will step in to prop up the Japanese Yen, which, in turn, weighs on the pair.

Gold advances to $4,200 amid retreating USD; Fed hike bets to cap further gains

Gold builds on its modest intraday move up and hits a fresh daily high around the $4,200 neighborhood during the Asian session. The US Dollar retreats from its highest level since April 2025 amid some profit-taking, offering support to the commodity. However, the US Federal Reserve's hawkish stance and escalating Middle East conflicts could limit deeper losses for the safe-haven buck.

Cardano: Retail support wanes as ADA tests a make-or-break level

Cardano price is up nearly 2% at press time on Tuesday, holding above its 50-day Exponential Moving Average (EMA) at $0.2302 and a near-term rising support trendline at $0.2264. ADA is losing retail demand in the derivatives market as its futures Open Interest declines and funding rates flip negative.

Indian Rupee gains further on RBI’s fresh measures to lower US Dollar’s demand

The Indian Rupee extends the Monday’s advance against the US Dollar on Tuesday, driven by the announcement of fresh Reserve Bank of India’s US Dollar-related measures to shore up the domestic currency. In the opening session, the USD/INR pair tumbles 0.6% to near 95.00, the lowest level seen in over a month.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?