Brazil's October 4 general election is around the corner and is already sparking a rally in local markets, with a presidential runoff expected on October 25.
Right-wing challenger Flávio Bolsonaro is statistically tied with socialist President Luiz Inácio Lula da Silva in potential runoff scenarios.
"Brazilian elections could not be more uncertain and competitive, as recent polls demonstrate. Voting intentions now show right-wing candidate Flávio Bolsonaro technically tied with current President Lula in a potential second-round runoff. This political shift comes as the country witnesses some of its most intense institutional noise, centered on the Supreme Court (STF) and the Banco Master case. The next important event around these developments will be the extraordinary Supreme Court session," Goldman analysts wrote in a note on Monday.
The latest Quaest survey released on Monday showed Bolsonaro at 42% and Lula at 40%, within the poll's two-percentage-point margin of error. A separate BTG/Nexus survey put Lula at 47% against Bolsonaro's 46%, highlighting how tight the race remains.
Last Thursday, Polymarket showed Bolsonaro overtaking Lula, with that lead maintained as of Tuesday morning. Bolsonaro's odds of winning currently stand at 52%, while Lula's are around 45%.
Brazilian stocks have rebounded alongside rising Polymarket bets on a Bolsonaro victory.
The tight presidential election race comes amid a deepening Supreme Court crisis over Banco Master that has impacted Lula. Later today an extraordinary session will be held to consider whether to authorize an investigation into Justice Alexandre de Moraes over alleged ties to banker Daniel Vorcaro. Moraes denies wrongdoing and has described the allegations as politically motivated.
For markets, the one development is the resilience of Brazilian assets against a difficult macro environment. The rally is consistent with traders pricing in that a new government could produce a different fiscal and economic-policy direction.
Goldman analysts outlined the Brazil rally in charts:
However, Deutsche Bank analysts believe that the next administration, whoever leads it, will be forced to address the fiscal challenge via spending cuts.
https://www.zerohedge.com/political/bolsonaro-lula-neck-and-neck-brazil-markets-bet-rightward-shift
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