Brazilian real falls 12% after Lula win as equity futures drop 15%
Key Facts
Luiz Inácio Lula da Silva was re-elected president of Brazil on Oct. 25, receiving 64,256,232 votes, or 51.79% of valid votes, compared with 59,826,041 votes for Flávio Bolsonaro, according to the Superior Electoral Court. As trading began in Brazil on Oct. 26, the real weakened about 12% against the dollar in the spot market, and Bovespa index futures fell nearly 15%, according to Reuters. The moves came after Brazilian assets had risen on the basis of different political expectations. Reuters said investors expected a volatile week as those bets were reversed. The election result quickly fed through to the currency, stocks and interest rate-linked contracts.
Before the vote, stocks closed Friday about 7% above their levels before the first round, and the real was about 5% stronger against the dollar, according to Reuters. The gains reflected expectations of a Flávio Bolsonaro victory, a rightward political shift and tighter fiscal policy. After Lula’s win, investors said they expected “sharp repricing” and asset selling. A strategist at Warren Investimentos added that interest rate futures could quickly hit their upper limit after the open. The comparison between pre-vote gains and subsequent moves highlights how quickly market positions changed after the result emerged.
In trading before the U.S. market opened, the iShares MSCI Brazil exchange-traded fund fell 26%, according to a version of Reuters’ coverage published by Boursorama. The same version reports that November Brazilian real futures fell more than 10%. That move differs from Reuters’ account of spot trading when trading began in Brazil, in which the real weakened about 12%. Bovespa index futures also fell nearly 15% in the same trading. The figures reflect moves in different instruments and markets across multiple trading sessions on Oct. 26.
On government debt, the National Treasury canceled the inflation-linked NTN-B bond auction scheduled for Oct. 27 and the fixed-rate bond auction scheduled for Oct. 29, according to InfoMoney. The Treasury kept the LFT auction, linked to the benchmark interest rate and scheduled for Oct. 27. The two cancellations come amid market turmoil following the election result, while the interest rate-linked bills remain on offer according to the stated schedule. The move shows a change in plans for issuing some debt instruments during election week. The available information did not include further details on the size of the canceled auctions or independent official reasons for the cancellations.
The election result moves into the implementation phase with a Congress leaning to the right and center, making passage of future fiscal policies dependent on legislative balances. The Liberal Party won 23 additional seats in the Chamber of Deputies and nearly doubled its seats in the Senate, according to the Associated Press. The Chamber of Deputies has 513 seats, and right- and center-wing lawmakers could hold a slim majority if they unite. This puts the incoming administration’s ability to pass its fiscal choices among the issues investors will monitor. A total of 128.2 million voters out of more than 158 million eligible voters took part in the second round, and turnout was about 19.2%, compared with 21.08% in the first round, according to the Superior Electoral Court.
The next milestone is the Brazilian central bank’s Monetary Policy Committee meeting on Nov. 3 and 4, 2026, with the decision due on the second day, according to the central bank’s calendar. The meeting follows the decline in the currency and equity futures after Lula’s victory. Markets will also monitor the incoming government’s decisions in light of the canceled debt auctions and the LFT auction still scheduled for Oct. 27. The composition of the next Congress places the fiscal policy path in the context of broader legislative negotiations. The central bank meeting will be the first scheduled monetary policy event after the post-election repricing wave.