Election race in Brazil stirs markets and currency

Brazilian voters headed to the polls for the runoff vote between the candidate who secured 47% of the first-round vote, right-wing Senator Flavio Bolsonaro, and, remaining at the 45% level, incumbent leftist President Luiz Inacio Lula da Silva. Outperforming polls to take the lead in the first round, this performance by Liberal Party candidate Flavio Bolsonaro triggered expectations of pro-business reforms in the markets. The emerging picture sparked a sharp rally in Brazilian markets and the country's currency.

How did the first-round results affect Brazilian markets?

Polls show the 2 candidates running neck-and-neck ahead of the runoff. However, the fact that no candidate in Brazilian political history has ever won the presidency after finishing the first round in second place keeps the historical trend in favor of Bolsonaro. The senator's first-round success was bolstered by the gains of the Liberal Party and its allied right-wing parties in the congressional elections. While this distribution paves the way on the legislative side for Bolsonaro, it creates a balance that could narrow the government's room for executive maneuver in a potential 4th term for Lula.

On the economic front, despite declines in unemployment and inequality rates, Lula struggled to convince voters due to high living costs and heavy household debt burdens. Widespread gang violence was also decisive in voting preferences. Bolsonaro, on the other hand, highlighted livelihood concerns and sought a voter base with a security agenda promising maximum-security prisons and tough measures for serious crimes.

How will the election outcome reflect on trade relations with the US?

The outcome of the runoff marks a threshold that will directly affect the foreign trade course of Latin America's largest economy. While a Bolsonaro victory signals closer ties with the administration of US President Donald Trump, the continuation of the Lula camp means ongoing trade and security disputes with Washington. In 2025, US President Donald Trump, linking the move to the case of former president Jair Bolsonaro, had imposed a 50% customs tariff on Brazil. Although this decision was later eased, Trump introduced new tariffs on Brazil this year, citing unfair trade practices.

In an election atmosphere debating the conviction of former president Jair Bolsonaro on charges of plotting a coup, his son Flavio Bolsonaro pledged to free his father if elected. Casting his ballot in Rio de Janeiro on Sunday, Bolsonaro urged voters to go to the polls, while Lula, voting in Sao Bernardo do Campo, thanked his supporters. Speaking to the press in Washington, US President Donald Trump refrained from openly endorsing either candidate, saying they were monitoring the process.

This content is for information purposes only and does not constitute investment advice.