Brazilian assets jumped after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race.   

Lula, as he is universally known, took 48% to Bolsonaro’s 43%, Brazil’s electoral court said, with almost all votes counted.

That tally left Lula without the simple majority needed for an outright victory, as some opinion polls had suggested, and set the two up for a bruising face off in what has already been a divisive election campaign.

Eoin Treacy's view

The Brazilian iBovespa is the only major global index in positive territory this year; in both nominal and currency adjusted terms. 13.75% short-term interest rates, up from 2% in March 2021 have successfully got inflationary pressures under control. The central bank expects to be cutting rates by the end of the year or early in 2023.

The open question is whether Lula can capitalize on the dour public mood, this hiking cycle created, to win the run-off election. Some people will remember the good old days of the commodity boom, while others will remember the pervasive corruption the commodity crash revealed. The one thing in his favour is he is not the incumbent. In that regard his electoral campaign has followed President Biden’s. He is keeping public appearances to a minimum and relying on the negative perception of economic health to do his electioneering for him. Bolsonaro has a steep path to victory but cannot be ruled out until the votes are counted.

Petrobras rebounded emphatically today on Bolsonaro’s stronger performance. The globe bearing 32% dividend yield is likely to remain secure if Bolsonaro wins. However, Lula’s cronies used the national oil company as a cheque book during their last turn in power. The widespread perception is the government would quickly move to contain Petrobras’ independence if Lula wins.

Meanwhile, the announcement over the weekend that OPEC+ will reduce supply by 1 million barrels a day is positive for oil companies.

For example Shell extended its rebound from the region of the 200-day MA.

Marathon Oil was the leading gainer on the S&P500 today as it rebounds from the region of the 200-day MA too.