Brazil’s Far-Right Is Surging — Investors Love It

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Welcome to Prof G Markets. I'm Ed Elson. It is October 6th. Let's check in on yesterday's market vitals. A rally in Big Tech drove the NASDAQ to a record high. The S&P 500 and the Dow also climbed. The yield on 10-year treasuries hit its highest level since 2002 Brent crude dipped below $100 per barrel. And finally, Nvidia shares rose more than 2% to hit a record high. OK, what else is happening? Brazil's election just sent its stock market to a record high. The IBA Vespa, Brazil's main stock index, jumped as much as 9% yesterday, making it the index's biggest intraday gain since April 2020 The real also rose more than 4% against the dollar. And it's now trading below 5 reals per dollar for the first time in about a year and a half. Now what were they actually reacting to? Well, Lula, Brazil's left-wing incumbent, was projected to finish first. And every final poll had him ahead. Instead, Senator Flavio Bolsonaro, the right-wing candidate who is the son of former president Jair Bolsonaro, won 47% of the vote on Sunday. Lula won 45%. Neither candidate cleared 50% though, meaning the two will now face each other in another election on October 25th. At the same time, the far right also achieved major victories in congressional and gubernatorial elections across the country. So here to break down what happened, we are speaking with Monica de Bolle, Senior Fellow at the Peterson Institute for International Economics. Monica, great to see you. Thank you for joining us on the show.

Let's just start from the very basics here because we haven't talked about Brazil in a long time. I guess the first question is, what happened in this election? What are the important things to be aware of? Then maybe we can get into the markets reaction.

Monica de Bolle (3:52)

There are three things that are very important about these elections. First of all, yeah, it was a presidential election. But more than that, it was also an election for governors in Brazil, and an election for Congress.

Really, it's an election with a three-part story. There's the story of the presidential election, there's the story of what happened to the gubernatorial races, and there's the story of what happened to the congressional races. All three stories are very compelling. The least compelling of them is actually the presidential race, because the presidential race, there's nothing there that we didn't already foresee.

Ed Elson (4:31)

Yeah. Tell us a little bit more about the presidential race here, because we obviously know the name Bolsonaro. His father is obviously pretty controversial.

What do we learn about the presidential race so far?

Monica de Bolle (4:47)

Both of those candidates, so both the current president Lula, who's running for re-election, as well as Flavio Bolsonaro, who's former president Jair Bolsonaro's son, both of them had very, very high rejection rates from the outset at about 45 percent. So about 45 percent of voters who had been polled throughout the campaign were saying, we're not going to vote for either one of those candidates. So it's not really an election about who is favored, or who the public likes the most, it's actually an election about who the electorate can stomach at this point, or who do they dislike the least. So it's important to contextualize that because then, when you look at the actual numbers and what happened, one important story here is that Brazil had, in the first round of the elections yesterday, the highest abstention rate that it has ever had in an election. It was at about 21