The Brazilian real is expected to strengthen on Monday after Senator Flávio Bolsonaro finished ahead of President Luiz Inácio Lula da Silva in the first round of Brazil’s presidential election, a result that exceeded pre-election expectations and prompted a positive initial reaction across Brazilian assets traded overseas.
Bolsonaro received 47.03% of valid votes, compared with 45.16% for Lula. Neither candidate secured the majority required for an outright victory, sending the presidential race to a runoff on Oct. 25.
Markets React to First-Round Result
The result came after pre-election polls had indicated a tighter race, with some surveys showing Lula ahead in the first round.
Investors are assessing the result in the context of the candidates’ different approaches to fiscal policy, government spending and economic management.
The initial market reaction reflects expectations around potential economic policy rather than a confirmed change in policy. The presidential election remains unresolved, and the direction of the next administration will depend on the outcome of the second round.
Fiscal Policy Moves Into Focus
Brazil’s fiscal outlook is likely to remain an important factor for the real, government bonds and equities during the final weeks of the campaign.
Some investors view Bolsonaro’s proposals to reduce government spending and pursue fiscal adjustment as potentially supportive of Brazilian assets. Any impact on borrowing costs and interest-rate expectations, however, would depend on the policies ultimately adopted and their implementation.
The first-round margin between the two candidates was 1.87 percentage points, leaving the final outcome to be decided on Oct. 25.
Brazilian financial markets will continue to assess both candidates’ economic proposals as the campaign enters the runoff period.
