Brazilian Real: Election shock drives sharp repricing – Deutsche Bank
Deutsche Bank strategists highlight Brazil’s surprise election, with President Lula winning a fourth term after trailing in the first round. A Tokyo-listed ETF tracking Brazilian equities fell sharply, and the Real is indicated lower via derivatives. They stress that a rightward shift in Congress should constrain fiscal loosening, making Lula’s ability to establish a credible fiscal path crucial…
Deutsche Bank strategists have noted the impact of Brazil's unexpected election victory on global markets. President Lula secured a fourth term, winning 51.8% of the vote compared to Bolsonaro's 48.2%, despite losing the initial round. This outcome surprised markets, as they had become increasingly confident in Bolsonaro's victory.
The Tokyo-listed ETF tracking Brazilian equities experienced a 15% drop in Asian trading, and the Real currency saw a 10% decline according to derivatives. Bolsonaro had been seen as the more market-friendly option, and recent gains in right- and centre-right parties in the Senate had led investors to expect tighter fiscal policies.
However, Lula's victory has shifted Congress to the right, which could hinder his ability to pursue significant fiscal loosening. Analysts emphasize that Lula's capacity to create a credible fiscal plan will be crucial for Brazilian assets, especially given existing debt concerns that are currently contributing to high interest rates.
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