Bolsonaro beats the polls, Brazil braces for a repricing

Flávio Bolsonaro took roughly 47% of Sunday's vote against Lula's 45%, a result that every major late poll missed by two to five points. A Datafolha survey days before the vote had Lula ahead 45 to 40. JPMorgan's pre-election scenario work put the gap between outcomes in stark terms: USD/BRL at 4.90 under Bolsonaro versus 5.50 under Lula, with equities potentially up 50% if a Bolsonaro win comes with credible fiscal tightening. A survey of 116 institutional investors by XP had already pencilled in a 6% rally and 40 basis points off swap rates on a strong Bolsonaro showing, and that's before Wednesday's runoff even starts. None of this is settled. Bolsonaro needs to build a majority coalition in three weeks, and a two-point first-round lead with Jair Bolsonaro still serving a 27-year sentence for plotting to overturn the 2022 result is a thin foundation for the market euphoria already being priced in.