Lula da Silva\u2019s<\/a> unexpected re-election after right-wing Flavio Bolsonaro, the son of former President Jair Bolsonaro, led in the first round of voting earlier this month.<\/p>\nBrazil\u2019s currency dropped against the dollar by 12 percent in spot trading. Bovespa stock index futures tumbled nearly 15 percent on Monday.<\/p>\n
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\u201cI\u2019m not surprised the real is sinking sharply; traders are covering their bets that assume a Bolsonaro victory and tighter fiscal policy,\u201d Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera.<\/p>\n
Brazil\u2019s stock exchange halted trading for 30 minutes. The Bovespa index fell 10 percent from its previous close, triggering a circuit-breaker safety mechanism and reversing a rally earlier this month amid expectations of a shift to the right after Bolsonaro won the first round.<\/p>\n
Ziemba says Bolsonaro\u2019s refusal to concede the election has driven some financial uncertainty.<\/p>\n
\u201cThe market pressure is also amplified by the objections raised by Bolsonaro, but the scale of the victory suggests that the result will stand,\u201d she said.<\/p>\n
Interest rate futures had also reflected expectations that tighter fiscal policy under Bolsonaro would allow borrowing costs to decline.<\/p>\n
\u201cThey [investors] assume more domestic spending and higher rates in Brazil. However, the real is still likely to be supported by strong commodity revenues,\u201d Ziemba noted.<\/p>\n
Stocks closed on Friday almost 7 percent above their level before the first round, while the Brazilian real was nearly 5 percent stronger against the US dollar.<\/p>\n
Interest rate futures are up 3.1 percent, rising sharply after President Lula\u2019s win. Interest rate futures had previously reflected a tighter fiscal policy amid expectations that Bolsonaro would oust the incumbent and that he would allow borrowing costs to decline.<\/p>\n
Lula faces an increase in Brazil\u2019s debt and will be challenged with protecting both social programmes and investment, with investors looking for signs of whether his gradual fiscal approach can bring borrowing costs down.<\/p>\n
Lula\u2019s team aims to produce a budget surplus of about 1.3 percent of gross domestic product (GDP) by 2030. That would leave money to cover part of the interest bill, reducing the need for fresh borrowing. But public debt already exceeds 82 percent of GDP, while pensions and other legally required spending limit where savings can come from.<\/p>\n
\u201cLula\u2019s policies have talked about spending cuts, but he has not gone into the details of how that is going to look,\u201d said Divya Singaravelu, head of research at Meridian 1305 Capital.<\/p>\n
Attention will now turn to Lula\u2019s choice of finance minister and what it signals about his fiscal approach.<\/p>\n","protected":false},"excerpt":{"rendered":"Investors react to Lula\u2019s election victory with a sharp decline in the Brazilian real and concerns over increased…\n","protected":false},"author":2,"featured_media":895583,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[37],"tags":[941,28,101,1070,7905,3140,112,3,111],"class_list":["post-895582","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-brazil","tag-business","tag-economy","tag-elections","tag-financial-markets","tag-latin-america","tag-markets","tag-news","tag-politics"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/895582","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=895582"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/895582\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/895583"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=895582"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=895582"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=895582"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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