Analysts See Brazil Markets Plunging After Lula Win, With Real Seen at 5.50
Updated
Updated · Reuters · Oct 26
Analysts See Brazil Markets Plunging After Lula Win, With Real Seen at 5.50
3 articles · Updated · Reuters · Oct 26
Summary
Brazilian markets were set for a sharp Monday selloff after Luiz Inacio Lula da Silva’s runoff victory, with analysts warning the post-first-round rally could reverse abruptly.
5.50 on USD/BRL, double-digit Ibovespa losses and even circuit breakers were among the forecasts, while Barclays said sovereign bonds could widen about 300 basis points in coming days.
15% higher Bolsa Família payments, fuel-tax cuts, transport subsidies and other pre-vote measures deepened worries that fiscal discipline will give way to looser spending under Lula.
14.50% on Jan-29 interbank rates is Morgan Stanley’s near-term call, with a slide toward 16.50% and USD/BRL at 6.00 if Lula’s team fails to signal spending cuts quickly.
Markets are now focused on Lula’s finance minister pick, his ability to build a congressional coalition and whether he can calm investors who had positioned for a more austere government.
Can Lula calm Brazil’s market panic before a weaker real, higher yields, and deeper stock losses turn election shock into a full fiscal credibility crisis?
Is Brazil’s post-election plunge a temporary overreaction, or a warning that debt fears and looser spending could trigger a longer emerging-market crisis?