Why Brazil's markets rallied
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Global investors did not expect Flávio Bolsonaro to convincingly top the first round of Brazil's presidential election, but now their expectations are running high that Latin America's largest economy could soon be transformed.
Why it matters: Should the right-wing candidate win the run-off on Oct. 25, nearly all of South America would become aligned with the Trump administration on trade, national security and other issues.
Driving the news: Brazilian markets surged Monday after Bolsonaro captured 47% of the vote Sunday.
- The Brazilian currency, the real, surged in value.
- After soaring more than 9%, the benchmark Bovespa stock index closed up 7.7%, its best daily gain since March 2020.
Zoom in: Bolsonaro, the eldest son of the former president known as the "Trump of the tropics," has pledged to cut public spending, which has helped push borrowing costs in Brazil higher.
- While it's unclear how fiscally prudent Bolsonaro might be, "markets are likely to give him the benefit of the doubt," said Thierry Larose, portfolio manager at Vontobel, per Reuters.
It's not just Bolsonaro's surprising show of strength: Other right-wing candidates made gains as well.
- And no presidential candidate who came in second in the first round has gone on to win the run-off since 1989, says the Economist Intelligence Unit.
What they're saying: "An increased likelihood of a change in government, together with the composition of the new congress, raises the probability of a credible fiscal anchor," UBS analysts wrote in a note Monday.
