Brazil stocks, real nosedive as Lula win ends bullish run — SkimNews
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- Brazilian real tumbled over 11 per cent against the U.S. dollar in early spot trading — one of its biggest daily declines on record — and was later down 8.3 per cent at 5.4274 per greenback, with raw sugar prices sliding 5.6 per cent on the collapsing exchange rate.
- Bovespa fell more than 15 per cent, its largest daily percentage drop since 1998, after B3 halted trading for 30 minutes once the index dropped 10 per cent from Friday's close; B3 had earlier widened daily trading limits for Bovespa futures, dollar futures and interest rate futures.
- Brazilian Treasury cancelled regular auctions of inflation-linked and fixed-rate government bonds scheduled for Oct. 27 and Oct. 29, respectively.
- Brazilian sovereign bonds were hit hardest at the long end: the 2054 maturity fell 2.5 cents with its yield at 7.45 per cent, while five-year credit default swaps jumped to 151.67 basis points from Friday's close of 120.21.
- Flávio Bolsonaro refused to concede and pledged to seek an annulment of the result, adding uncertainty after the earlier-month rally that saw the Bovespa close Friday nearly 7 per cent above its pre-first-round level and the real nearly 5 per cent stronger on bets on tighter fiscal policy and lower borrowing costs.
- Lula's team aims for a budget surplus of about 1.3 per cent of gross domestic product by 2030 but has not specified how spending cuts would work; RBC BlueBay's Graham Stock called the finance minister pick in coming weeks the key market signal, and UBS's Alejo Czerwonko said investors want a clear, credible commitment to fiscal discipline.
- Oxford Economics senior Latin America economist Mauricio Monge said the victory triggered the sharp selloff as investors reassessed the fiscal outlook for Lula's fourth term, with his biggest challenge convincing markets he can deliver a credible, sustainable fiscal adjustment while prioritizing real wage growth and employment.
Why it matters: Brazilian lenders repriced sovereign risk: five-year CDS jumped from 120.21 to 151.67 basis points and the Treasury pulled its Oct. 27 and Oct. 29 bond auctions. Investors want a clear fiscal commitment, and without confidence in his delivery, higher interest rates make credit more expensive for businesses and households.
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