Brazilian markets tumble after Lula’s reelection as dollar rises

October 26, 202612:21 pm

Brazilian financial markets came under pressure on Monday following President Luiz Inácio Lula da Silva’s victory in the presidential runoff, as investors who had anticipated a win for right-wing candidate Flávio Bolsonaro reacted to the unexpected result.

The market response followed a more positive reaction to Bolsonaro’s performance in the first round, when investors anticipated potentially favorable conditions under a government led by the son of former President Jair Bolsonaro.

On October 26, the U.S. dollar opened higher against the Brazilian real. According to local media reports, the currency had risen 12.25% shortly after 9 a.m. local time, trading at 5.60 reais.

The Ibovespa Futures index, which reflects expectations for the performance of Brazil’s main stock market index, fell 14.84% in early trading, reaching 177,215 points, according to InfoMoney.

Trading halted amid market turmoil

Brazil’s stock exchange reportedly activated a circuit breaker, temporarily suspending trading after the Ibovespa’s decline. Local media said the measure had not been used since 2020, during the COVID-19 pandemic, when financial markets experienced sharp movements.

The U.S.-listed EWZ exchange-traded fund, which tracks Brazilian equities, also recorded a steep decline in premarket trading following confirmation of Lula’s reelection. At 5:34 a.m. Brasília time, the fund was down 26.04%, trading at $31.30.

Major Brazilian companies also faced significant losses. Petrobras shares fell 21%, while Itaú and Bradesco declined 27% and 29%, respectively, according to financial media reports.

Meanwhile, JPMorgan projected that yields on Brazilian government bonds could reach 15.5% under a pessimistic scenario. Analysts said Lula’s victory could put upward pressure on interest rates, while emphasizing the need to monitor market developments over the coming trading sessions.