Lula wins with 51.79% and Ibovespa triggers circuit breaker for the first time since 2020, with the dollar at R$5.60
Index futures fell 19.78% to their lowest point, long interest rates rose above 8% and the Treasury canceled auctions; for Investor Sardinha, the reaction was exaggerated
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM INVESTIDOR SARDINHA · 3 MIN
Luiz Inácio Lula da Silva's victory in the second round, with 51.79% of the votes against Flávio Bolsonaro's 48.21%, caused a sharp sell-off in Brazilian assets this morning. According to the Investidor Sardinha channel, the Ibovespa futures contract dropped 19.78% at its lowest point, to 166,940 points, compared to 205,000 points on Friday, after a historic high of 209,000.
The circuit breaker was activated for the first time at 9:57 am, the first since March 2020. The mechanism interrupts trading so that investors can calm down, and B3 then increased the futures fluctuation limit from minus 10% to minus 15% and then minus 20%, allowing trades to continue.
The dollar went from R$4.99 on Friday to a high of R$5.60, according to the presenter. He emphasizes that this is not the level that should prevail at the end of the day, but states that the movement is clear. At 10:54 am, the Ibovespa was operating with a drop of close to 17%, and the long interest rate was above 8%.
Effects abroad and in the Treasury
The Treasury canceled the auctions for fixed-rate bonds and IPCA+ (NTN-B) scheduled for Tuesday and Thursday. The presenter recalls that the government had already taken advantage of the significant drop in interest rates to sell a large volume of bonds in previous weeks. In his opinion, the person who profited from the so-called Flávio trade was Lula himself.
In the American pre-market, the EWZ, an ETF that replicates the Brazilian stock exchange in dollars, fell 26%. Among stocks, Petrobras fell 20% to 25%, Itaú 28.5%, Bradesco 26.8%, Nubank 24% and Mercado Livre 10.3%. The presenter considers that the numbers may not be maintained and classifies the drop as disproportionate, citing short traders and investors who sell without discretion.
An additional element of uncertainty is that Flávio Bolsonaro disputes the result. According to the channel, a Citi survey showed that 79.5% of investors expected a drop of more than 5% in the event of Lula's victory. The presenter says he has preliminarily determined that the votes under discussion after 5 pm would total less than 100,000, which, in his reading, does not change the outcome.
What to expect, according to the channel
The presenter maintains that he had already warned, in videos and in class for students, that Flávio's victory scenario was excessively priced and that this favored the dollarization of the portfolio. Those who kept part of their assets in dollars, he said, were protected from the fall in the local market, although they also recorded losses in their Brazilian portfolio.
In his analysis, the government injected resources into the economy at the end of the electoral cycle, which should boost trade in November and December. He warns, however, that, without cuts or new spending controls, inflation could become higher in the first quarter of 2027, and sees opportunities in real interest and fixed income for a long cycle.
In the political field, the channel highlights that the elected Congress and Senate are mostly right-wing, which, in its assessment, limits Lula's space and leaves him exposed to the risk of impeachment in the event of an error. For the presenter, this could be positive for the economy. He recommends calm, says that money decisions should not be made under emotion and remembers that the stock market, during the pandemic, reached 60,000 points and then returned to 200,000. The opinions are those of the presenter and do not constitute investment recommendations.
Automatically translated from Portuguese.
