Brazil's markets set for sharp sell-off after Lula's reelection

Brazilian markets are anticipated to experience a significant downturn on Monday following the reelection of President Luiz Inacio Lula da Silva. This unexpected outcome has altered investors' expectations from a right-wing victory, and the president's fiscal policies are now once again under close examination.

The Brazilian real futures declined by over 10 percent, while the iShares MSCI Brazil exchange-traded fund saw a substantial 26 percent drop in premarket trading. The country's international debt also suffered, with some long-dated bonds plummeting by more than 2 cents. Earlier this month, markets had rallied based on the anticipation of a shift to the right following Flavio Bolsonaro's surprising first-place finish in the presidential election's opening round.

On Friday, stocks had already closed nearly 7 percent higher than their pre-election round value, and the real was nearly 5 percent stronger against the U.S. dollar. Interest-rate futures had also indicated expectations of lower borrowing costs under Bolsonaro's more stringent fiscal policies.