Lula rallies in São Paulo and Rio as polls show Flávio Bolsonaro leading Brazil's October 25 runoff

What this means

The real and Brazilian local-currency bonds have already priced in a Bolsonaro win and a more conservative Congress. The remaining risk is therefore asymmetric: a Lula comeback would undo much of the post-first-round rally in the real and push long-term local yields higher, while a Bolsonaro win mostly confirms what is already priced. For investors, Congress matters more than the president, because Brazil's spending rules pass through the legislature. The 2018 precedent is relevant. The real rallied before Jair Bolsonaro's runoff win, then traded sideways for months as pension reform moved slowly through Congress. The likelier outcome is a Flávio Bolsonaro victory followed by weeks in which the real depends on the fiscal team he names, not on the election result itself. Two concrete signals would decide whether the post-election period goes well for the currency: an economy minister with market credibility, and early congressional votes on spending limits. A poll swing that brings Lula within the margin of error in the final week would reverse part of the currency move before the vote.