Brazil's Lula faces fiscal test after market selloff

Brazilian markets plunged Monday after Luiz Inácio Lula da Silva's surprise re-election, with the stock index falling 13.9% and the real dropping nearly 8% against the dollar, raising fears of a fiscal crisis. Investors worry Lula's costly campaign promises, including higher social spending, will worsen Brazil's growing debt-to-GDP ratio, prompting the Treasury to cancel bond auctions. Analysts expect initial market-calming measures, such as spending freezes and a market-conscious finance minister, to avert a major crisis in 2027. Lula faces pressure to deliver tangible household improvements while reassuring bond markets, with analysts questioning whether fiscal discipline will last. The selloff could also hurt broader Latin American indices, which had hit 12-year highs this year on expectations of a rightward political shift.