Brazilian markets brace for losses after Lula's election win

Brazilian markets are expected to react negatively on Monday, October 26, following President Luiz Inácio Lula da Silva's reelection on Sunday. This reverses the 8.8% rally seen the week after the first round, when candidate Flávio Bolsonaro led the vote count. International assets trading overnight already showed losses, with the EWZ ETF in New York down 18.29% and the Next Funds Ibovespa Linked in Tokyo falling 11.8%. Analysts predict a possible circuit breaker on the B3 stock exchange, with the Ibovespa potentially dropping over 10%, and expect the central bank to intervene in the currency market as the dollar may open above R$5.30. Market experts attribute the negative sentiment to Lula's victory being a surprise, as investors had favored Bolsonaro. Concerns focus on fiscal challenges, with gross debt near 83% of GDP and a primary deficit of 0.6%, though some see potential for reversal if Lula signals credible fiscal adjustment and economic team appointments.