Brazil Election Risk: Stocks and the Real Recover Five Days Before the Vote

Brazilian stocks and the real ended Tuesday higher after a nervous morning. Behind the swings sit two questions: who wins the presidency, and what the winner then does with the budget.

Brazil election risk set the tone on Tuesday 29 September 2026, five days before Brazilians choose a president. Stocks and the real, Brazil’s currency, lost ground in the morning and recovered by the close.

President Luiz Inácio Lula da Silva of the Workers’ Party (PT) is seeking a fourth term. His main rival is Senator Flávio Bolsonaro of the Liberal Party (PL), son of former president Jair Bolsonaro.

The first round is on Sunday 4 October. If no candidate wins more than half of the valid votes, the top two meet in a runoff on 25 October.

The Ibovespa, the main index of the São Paulo exchange B3, closed up 0.46% at 183,828 points on Tuesday. Valor and G1 both reported that closing level.

The rise ended four days of losses, Reuters reported. At about 1 p.m. Brasília time (16:00 UTC) the index was down 0.32%, near its low of 181,562 points, Valor reported.

At the close, the dollar was down 0.16% at a rate of 5.2166 against the real, Valor reported.

The clearest election signal came from DI futures. These contracts, traded on B3, track Brazil’s interbank lending rate and show where traders expect borrowing costs to go.

At Tuesday’s settlement, reported by Valor at 5:34 p.m. Brasília time, the January 2029 contract fell to 13.79% from 13.90%. The January 2028 rate eased to 13.575% from 13.665%.

Valor linked the fall to cheaper oil, softer words from a US Federal Reserve official and investors adding risk. Earlier, it tied that appetite to the prospect of a possible Flávio Bolsonaro victory.

A government bond sale pointed the same way. The National Treasury sold all 900,000 inflation-linked NTN-B bonds on offer, at lower rates than traders had expected.

Investors took only 23.1% of the 500,000 LFT bonds, which pay the floating Selic policy rate. Market participants read that mix as appetite for risk, Valor reported.

Reuters, in a story carried by InfoMoney, said many traders see a Lula re-election as an obstacle to controlling public finances. Poll news that favours Flávio Bolsonaro therefore tends to push the dollar and local rates down, it said.

The government argues the opposite. Finance Minister Dário Durigan defended its record in an article for The Economist, InfoMoney reported.

He wrote that the primary deficit, before interest, fell from just over 2% of GDP in 2023. He projected 0.6% for 2026.

Goldman Sachs holds a more guarded view, Valor reported. It likes options that pay if the dollar falls below 5 against the real within three months.

Even with a Flávio Bolsonaro win, Goldman believes, difficulty implementing a fiscal agenda could slow the real’s gains.

JPMorgan said the real carried no significant election premium, InfoMoney reported on 28 September.

A result seen as bad for the public finances could send the dollar toward 5.50 against the real, the bank said. A result read as favourable could lift the real about 6%, taking the dollar near 4.90.

For a lasting shift, JPMorgan said, the winner needs clear budget commitments and a credible plan to deliver them. In its own model portfolio, the bank keeps a neutral weight on the real and options that gain if it weakens.

Citi is more hopeful, Valor reported. Its strategists, led by Dirk Willer, see a slight edge for Flávio Bolsonaro and opened an options position betting on the real.

Jonathan Joo Young Lee, head of the international desk at the broker Mirae Asset, said caution dominates among foreign investors. He told Valor that Lula’s larger Bolsa Família family payments and a ban on betting sites had raised their budget worries.

JPMorgan’s own investor survey leans one way, InfoMoney reported. Weighted by money managed, 59.7% of respondents expected Flávio Bolsonaro to win and 40.3% Lula.

Polls are tighter: an Atlas/Bloomberg survey released on Tuesday had Lula ahead in the first round, 45.3% to 42.2%, Reuters reported. Atlas interviewed 5,005 people online from 23 to 28 September.

In a runoff it showed Flávio Bolsonaro on 47.7% and Lula on 47.6%, a statistical tie within its one-point margin. A Quaest poll released on Monday tied them at 42% each, G1 reported.

Quaest interviewed 2,004 people from 24 to 27 September, with a two-point margin. Both firms called the runoff a technical tie.

State results can differ from the national picture, as the latest Rio Grande do Sul poll shows. Neither national survey gives either man a clear runoff lead.

The 10-year US Treasury yield stood at 5.24% on Monday, the highest since June 2007, the US Treasury’s daily table shows.

On Tuesday the same table read 5.26%, level with 12 June 2007. The Federal Reserve, the US central bank, raised its key rate by a quarter point to 3.75%, 4% on 16 September.

Relief came in the afternoon from John Williams, president of the Federal Reserve Bank of New York. After the September increase, “there is no need for urgency,” he said in prepared remarks in Buffalo, New York.

Brazilian rates then hit their lows of the day and the dollar extended its fall, Valor reported. Brent crude, the global benchmark for oil, closed 2.6% lower at US$102.59 a barrel, Reuters reported.

Borrowing is already costly inside Brazil, where the central bank’s Selic rate stands at 13.75%. The strain on companies is the subject of our report on Moody’s 2027 warning for Brazilian corporate debt .

The S&P/B3 Ibovespa VIX, a gauge of expected swings built from option prices, hit 31.84 on Monday 28 September. That was its highest since its launch in March 2024, InfoMoney reported.

The longer view is calmer. A Quantum Finance study found the Ibovespa’s daily swings this year far smaller than in the three previous election cycles, Valor reported.

For anyone who earns in dollars and spends in reais, the vote brings exchange-rate risk in both directions. Option prices imply a move of about 6.5% across the two voting days combined, JPMorgan estimated.

What nobody yet knows is how the winner will handle the budget, the core of Brazil election risk. JPMorgan said that clarity had not yet appeared when its report was published.

The bank argues the harder test comes after the count. The winner would need to name an economic team and win support in Congress, especially the Senate, it said.

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