Ibovespa Set to Rise for 5th Session

Brazilian equities are expected to extend their recent advance on Monday, with the Ibovespa potentially heading for a fifth consecutive session of gains after Flávio Bolsonaro unexpectedly finished ahead of President Luiz Inácio Lula da Silva in the first round of the presidential election. Bolsonaro won 47.03% of valid votes, while Lula received 45.16%, with the two candidates set to compete in a runoff on October 25. The result is likely to boost investor confidence, particularly among those who view Bolsonaro as more likely to implement fiscal restraint and policies supportive of private-sector investment. A stronger conservative presence in Congress and state governments could further improve his ability to advance economic reforms if elected. Nevertheless, the narrow first-round difference leaves considerable uncertainty ahead of the runoff, meaning Brazilian stocks could remain sensitive to campaign developments and shifts in expectations.

The Ibovespa jumped 2.6% to close at 192,114 in a highly volatile session ahead of Sunday’s first round of elections. The index posted strong gains early in the session amid a favorable external backdrop, then erased them on political risks before regaining momentum. The proximity of the election keeps demand for hedging elevated. When markets reopen on Monday, the election result, the composition of Congress and signals on fiscal policy are likely to carry greater weight in the pricing of Brazilian assets. Meanwhile, oil prices fell after the G7 agreed to release strategic reserves to ease mounting fuel costs, reducing concerns over energy-driven inflation. Softer-than-expected US payrolls also supported credit-sensitive stocks as expectations of a Fed rate hike this month declined. Financials gained, with Bradesco up 3.2%. Utilities advanced, Axia rose 2.8%. Petrobras added 2.8%, while WEG gained 3.8% and Rede D’Or rose 3.6%. The Ibovespa added 4.7% on the week.

The Ibovespa rose more than 0.5% to hover around 188,500 on Friday, posting broad-based gains amid a favorable external backdrop. Oil prices fell as European governments considered releasing strategic reserves to ease mounting fuel costs, reducing concerns over energy-driven inflation. Softer-than-expected US payrolls also supported credit-sensitive stocks, reducing expectations of a Fed rate hike this month. Major banks rose, with Itaú and Bradesco gaining about 1.5%, while Banco do Brasil rose more than 2%. Utilities also advanced, with Axia up more than 2%. Friday marks the last trading session before the first round of Brazil’s presidential election on Sunday. A poll released Thursday showed President Lula and  Senator Flávio at a technical tie in a potential second-round matchup.  Also on Thursday, Bolsonaro withdrew from a debate hours before it was scheduled to begin. The broadcaster subsequently canceled the event, which would already have gone ahead without Lula.