Markets
Lula's Upset Win Erased the Real's Bolsonaro Rally Overnight
The dollar jumped about 8% against the real overnight after Lula won Brazil's runoff with 51.79% of valid votes. On Binance, USDT/BRL rose from 4.974 at Sunday's close to a high of 5.477, and a Tokyo-listed Ibovespa ETF fell more than 11% at the open. Flávio Bolsonaro has not conceded. Brazil's own markets open at 13:00 UTC.
Three weeks ago the market priced a Bolsonaro presidency in a single session. On Sunday night it priced the opposite, and it did not wait for São Paulo to open. President Luiz Inácio Lula da Silva won the runoff of October 25 with 51.79% of valid votes against 48.21% for Flávio Bolsonaro, a margin of about 4.43 million votes on a turnout of 80.78%, according to the electoral court's count with every polling station reported, as compiled by The Rio Times. It is the first time since direct elections returned in 1989 that the runner-up of the first round has won the runoff; Bolsonaro had led on October 4 with 47.03%, and the final Datafolha and Quaest polls had him ahead 51% to 49%.
The currency told the story hour by hour. On Binance's USDT/BRL pair, which trades through the weekend, the dollar closed the 21:00 UTC hour at 4.9743 reais, near its lowest level since the first round. In the 22:00 hour, as the first results came in, it traded up to 5.1498 on $66 million of volume, more than four times the hour before. It reached a high of 5.4772 in the 01:00 UTC hour, 10.1% above Sunday evening's level, and stood at 5.3723 at 06:00 UTC, still 8.0% higher. The Rio Times reported that dollar-real futures on the CME rose about 10% in Sunday evening trading, and that the NEXT Funds Ibovespa Linked ETF in Tokyo fell more than 11% at the open; investingLive put the fall at nearly 15%.
Those numbers come close to the extreme case Goldman Sachs had sketched for a Lula win, relayed by investingLive: the dollar up 10% against the real, long-term government bond yields up about 200 basis points, credit spreads 30 to 40 basis points wider and Brazilian stocks down about 15%. The move is the October 5 trade in reverse. That day the Ibovespa rose 7.70% and the real gained about 4% on the first-round result; on Friday the index closed at 205,083, 6.75% above its pre-election level. All of that premium was built on an outcome that did not happen.
Politics may keep the risk premium high for longer than one session. Flávio Bolsonaro said on Sunday night that it was impossible to recognise the result and that his campaign would ask for the election to be annulled, The Rio Times reported, objecting to a decision by Supreme Court Justice Cristiano Zanin to extend voting by two hours in areas hit by heavy rain. No filing had been reported by Monday morning and the electoral court had not commented. Lula, meanwhile, has not named an economic team, and his Liberal Party opponents hold the largest bench in the Chamber of Deputies, with 121 of 513 seats.
The effects reached beyond Brazil. Chicago soybean futures fell 1% to $12.44 a bushel, their lowest since August 26, which Bloomberg linked partly to expectations that Lula will deepen trade ties with China, Brazil's largest soybean customer, while other reports pointed to the record US harvest and cheaper crude. The real test comes when B3 opens at 10 a.m. in São Paulo, 13:00 UTC, and when the American depositary receipts of Petrobras, Itaú and Vale start trading half an hour later. Sunday-night markets are thin and often overshoot, so the first hour of local trading will show how much of the 8% survives contact with Brazilian buyers.