NEW YORK/BRASILIA - Brazilian President Luiz Inacio Lula da Silva won reelection on Sunday, defeating right-wing Senator Flavio Bolsonaro and setting up a test for financial markets, with investors expecting recent bets on a change of government to unwind in a volatile week ahead, Reuters reported. Lula's victory was confirmed by Brazil's electoral authority, the TSE, on Sunday, Reuters said in its election report; the Associated Press put the margin at nearly 4.4 million votes, with Bolsonaro receiving 59,826,041 votes, or 48.21 percent, in the runoff.
Source: Reuters, Oct 26; AP via The Brief, Oct 26
Markets had moved sharply in anticipation of a right-wing shift since Bolsonaro, the son of former President Jair Bolsonaro, unexpectedly finished first in the opening round three weeks ago, Reuters said. Stocks closed on Friday almost 7% above their level going into the first round, while the real was nearly 5% stronger against the US dollar, and interest-rate futures had indicated expectations that tighter public finances would allow borrowing costs to decline.
Source: Reuters, Oct 26, by Rodrigo Campos and Marcela Ayres
'We expect a sharp market reaction on Monday, with aggressive repricing, a selloff in assets and interest rate futures likely to hit their upper limit shortly after the open,' said Luis Felipe Vital, head of macro strategy at Warren Investimentos, quoted by Reuters.
Source: Reuters, Oct 26 - Warren Investimentos
The fiscal question for Lula's fourth term
Over the next four years, Lula must slow the growth of Brazil's debt while protecting social programs and investment, Reuters reported. For investors, the question is whether his gradual approach to fixing public finances can bring borrowing costs down; without confidence that he can deliver, lenders could demand higher interest rates, adding to the government's debt and making credit more expensive for businesses and households, Reuters said.
Source: Reuters, Oct 26
'Investors want a clear and credible commitment to fiscal discipline,' said Alejo Czerwonko, chief investment officer for emerging markets at UBS Global Wealth Management, quoted by Reuters. 'We expect the rally that followed the first round to be largely priced out, and sentiment to stay weak until a clear fiscal plan emerges.'