Brazil Presidential Election Nears; Wall Street Braces for Different Results

Brazil’s first round of voting will take place on October 4 from 8am to 5pm Brasilia time (11:00 to 20:00 GMT).

Brazilian voters face a choice between left-wing President Luiz Inacio Lula da Silva and right-wing candidate Senator Flavio Bolsonaro, son of former President Jair Bolsonaro. Polls suggest Lula, seeking a fourth non-consecutive term, and Flavio Bolsonaro are in a virtual tie in a simulated run-off. Wall Street is preparing for starkly different market predictions depending on the election outcome.

Fernando Marengo, chief economist at Black Toro Global Investments, stated the "Brazil trade is: Does Lula win or does Bolsonaro win?" JPMorgan noted that the MSCI Brazil rose by 0.25% on average each day that Flavio gained in the polls. Kalshi markets show Flavio Bolsonaro favored to win 60% to Lula's 39%, though prediction markets are prohibited in Brazil.

Richard Lapper, senior advisor at Aurora Macro Strategies, said the balance has shifted toward Flavio Bolsonaro but not as far as prediction markets price. Flavio Bolsonaro is favored by markets due to promises of fiscal discipline. Brazil's debt-to-GDP stands at 81.9%, an increase of 10% since Lula took office. Leonardo Porto, Brazil head economist for Citi, said Brazil needs a 3-3.5% fiscal adjustment to stabilize public debt.

Brazil's tax burden is 32%, the highest in Latin America, according to the OECD. If neither candidate receives more than 50% of the vote, a runoff election will occur on October 25. Former President Jair Bolsonaro is serving a 27-year prison sentence for his role in a coup plot following his 2022 loss to Lula.

Flavio Bolsonaro has promised to pardon his father if he assumes Brazil's highest office. Lula has accused Bolsonaro's camp of encouraging foreign interference. Brazil's national intelligence agency, ABIN, presented evidence of US meddling. President Donald Trump stated on Thursday that he is following the Brazilian election very closely, calling Brazil a very important country.