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As Brazilians head to the voting booth on Sunday (25 October) for the presidential runoff, polls indicated President Luiz Inacio Lula da Silva had seemingly narrowed the gap with Senator Flávio Bolsonaro, making the race too close to call. Datafolha said on Thursday (22 October) that Lula would receive 46% — from a poll a week earlier predicting 45% — while the eldest son of incarcerated former President Jair Bolsonaro would receive 47%, unchanged from the previous week’s estimate.
The BRL and stock index Bovespa didn’t suffer unduly this week because of the uncertainty, but hedging costs such as options prices and put-cost skews surged. Equities and the BRL had rallied after Bolsonaro received an unexpected 47.03% of votes in the 4 October first round, against Lula’s 45.16%, and Bolsonaro’s Liberal Party obtained strong results in Congress.
But the market’s hope of greater fiscal discipline under a Bolsonaro administration could prove challenging, as 90% of the 2027 budget bill’s primary spending is mandatory, and legal commitments and the cost of keeping public services running limit cuts to the remaining 10%.
Meanwhile, emerging markets saw a broader bond selloff this week amid the tech-led equities decline, higher...
