Brazil's currency, stocks and bonds jumped after rightwing senator Flávio Bolsonaro took a first-round lead over President Luiz Inácio Lula da Silva in the country's election. Investors are betting Bolsonaro is more likely than Lula to cut spending quickly and ease the path for lower interest rates.
Brazil's real rose 5% against the dollar on Monday after Bolsonaro's first-round victory. The country's main share index surged around 8% over the same session. Bolsonaro won 47% of the vote to Lula's 45%, well ahead of polling projections, putting him in position for a run-off later this month. No first-round runner-up has won a presidential run-off since Brazil's return to democracy in the 1980s.
Bolsonaro's party sweeps down the ballot
Bolsonaro's Liberal Party also swept key legislative seats and governor elections as voters shifted further conservative. Investors see Bolsonaro as likelier than Lula to move quickly on spending cuts, narrowing a budget deficit that is running at close to a tenth of GDP.
Fiscal credibility and rate-cut bets
Public debt stands at more than 80% of national economic output, a level economists warn is unsustainable. Investors are betting the central bank will gain room to cut its interest rate from 13.75%, a level that has strained businesses and consumers. T Rowe Price emerging markets macro strategist Chris Kushlis said "neither candidate will have a free hand", given the need to push fiscal reforms through Brazil's Congress.
Bonds and stocks lead the rally
Yields on Brazil's euro-denominated government bonds fell from 6% to 5.8% on Monday, and the cost of default protection on Brazil and state oil company Petrobras also dropped. The real has gained close to a tenth against the dollar so far in 2026, making it one of the best-performing emerging-market currencies this year. The iBovespa has risen a quarter in dollar terms this year, slightly ahead of an MSCI gauge for emerging-market stocks.
State-controlled lender Banco do Brasil was the strongest performer on São Paulo's B3 stock market on Monday, jumping 12%. Petrobras, the national oil producer, rose 3.2%. Investors have criticized the Lula administration's more interventionist approach to companies majority owned by the government.
Source: Financial Times
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