Ibovespa Slides Following Election Runoff Polls

The Ibovespa fell 1.1% to close at 204,324 on Thursday as investors reassessed the political outlook ahead of Brazil’s presidential runoff later this month. New polls showed Flávio Bolsonaro’s lead over President Lula narrowing, tempering optimism that had fueled a rally in Brazilian assets last week after the senator unexpectedly finished ahead of Lula in the first round. Although Flávio Bolsonaro has yet to present detailed policy plans, investors view him as more likely to pursue fiscal reforms, including spending cuts, which are seen as essential to lowering interest rates. However, questions remain about the fiscal discipline of a potential Flávio administration. Political pressure has already prompted the candidate to change his position and support ending the six-days-on, one-day-off work schedule, which the Senate approved yesterday. Among the notable laggards, Itaú fell 1.3%, Banco do Brasil gained 1.8%, Axia and Petrobras each lost 1.3%, and WEG dropped 2.7%.

The Ibovespa fell over 1% to around 204,000 on Thursday following weaker-than-expected retail sales data. Brazilian retail sales volume rose 0.1% month-over-month in August, missing forecasts for a 0.7% increase and adding to signs of a gradual slowdown in economic activity. Services and industry point in the same direction, with services volume falling 0.1% and industrial production declining 0.6%. The weakness is most pronounced in sectors sensitive to credit and financial conditions, including furniture, household appliances, vehicles and construction materials. Among major retailers, Magazine Luiza led losses, falling 5%, while other retail stocks declined between 1% and 3.5%. Other credit-sensitive stocks also weakened, with Itaú and Bradesco down about 2%, alongside other major financial shares. Utilities fell as well, with Axia losing nearly 1%. Petrobras and Vale each shed about 1% as oil prices fluctuated and iron ore prices extended their declines.

The Ibovespa edged down 0.2% to close at 206,506 on Wednesday in a volatile session amid weak economic data and an unfavorable external backdrop. Services activity contracted 0.1% in August, missing expectations for a 0.5% increase. Brazil’s Industrial Business Confidence Index rose 1.3 points to 46.2 in October but remained below the 50-point threshold, marking 22 consecutive months of pessimism. Oil prices extended their gains, stoking concerns over energy-driven inflation, while hotter-than-expected US CPI data pressured lenders amid increasing bets of a the Federal Reserve’s rate hike. Major banks declined, with Itaú down 1.4% and Bradesco losing 2.5%. Other financial stocks also fell, with B3 shedding 1.9% and Itaúsa losing 1.6%. Miners extended their losses, with Vale down 0.7% as Chinese iron ore prices continued to decline. In contrast, Petrobras rose 2.2% as oil prices resumed their climb. Investors awaited a new presidential runoff poll after the market close.