Lula or Bolsonaro: Wall Street braces for two wildly different results in Brazil election — SkimNews
Get the Geopolitics newsletter
Daily geopolitics — wars, elections, sanctions, the diplomatic moves that move markets. Free.
- Luiz Inacio Lula da Silva and Flavio Bolsonaro face off in Brazil's presidential election first round Sunday; if neither tops 50%, a runoff is set for Oct. 25.
- Kalshi prediction markets show Bolsonaro favored 60% to Lula's 39%, though Aurora Macro's Richard Lapper warned the gap hasn't shifted that far in reality — prediction markets are prohibited in Brazil and may not capture local sentiment.
- JPMorgan noted MSCI Brazil rose an average of 0.25% per day when Flavio gained in polls, and projects 21-41% equity upside if a reform agenda is implemented, with forward P/E moving from 8.6 to as high as 13.3.
- Citi's Leonardo Porto said Brazil needs a 3-3.5% fiscal adjustment to stabilize public debt, noting debt-to-GDP stands at 81.9% — up 10 percentage points since Lula took office.
- JPMorgan projects USD/BRL at 4.90 under Bolsonaro versus 5.50 under Lula, and sees 2-year yields potentially falling toward a neutral 6% real / 10% nominal if reform momentum returns to the 2016-2020 era under Jair Bolsonaro.
- The entire lower house and one-third of the upper house are also being decided, with legislative composition seen as critical to passing reforms — a steep challenge given roughly 90% of Brazil's budget is mandatory spending, some constitutionally required.
Why it matters: JPMorgan's 21-41% MSCI Brazil upside estimate under Bolsonaro is anchored in his father's pension reform precedent, which cut 2-year yields to ~4.7% and lifted equities 130% from 2016-2020 — but the article notes legislative gridlock risk and a 3-3.5% fiscal gap that neither candidate has a clear path to close given mandatory-spending constraints.
Ask SkimNews
