Brazilian Markets Fall Sharply After Lula's Re-election as Defeated Rival Flávio Bolsonaro Defies a Court Order and Flies to the US

Investors sold Brazilian assets after President Luiz Inácio Lula da Silva won Sunday's runoff. On Monday the Ibovespa fell as much as 17.34% during the session before closing down 13.88%, O Povo reported. The drop triggered the first trading halt since the 2020 pandemic, according to Nikkei Asia. The dollar rose 8.21% to 5.40 reais, its largest one-day gain since January 13, 1999, InfoMoney reported. Analysts told France 24 that traders were unwinding positions built on a win for his rival, Senator Flávio Bolsonaro, who led the first round, and on expectations of tighter fiscal policy.

The National Treasury cancelled scheduled bond auctions and bought back 16.8 billion reais of inflation-linked notes to limit the rise in yields. Markets steadied on Tuesday. The Ibovespa fell 0.51% to 175,710 and the dollar dropped 0.97% to 5.3506 reais, InfoMoney reported.

Congress gave investors new evidence for their spending concerns on Tuesday. The Chamber of Deputies voted to extend the "border allowance" to more public-sector careers and to raise it from 91 reais to 191 reais per day from 2027, which increases government spending, Folha reported.

The political aftermath has an international dimension. Flávio Bolsonaro left Brazil with his wife and two daughters despite a Supreme Federal Court order barring him from leaving, and the US State Department confirmed it will grant the family visas, MercoPress reported. Justice Alexandre de Moraes had ordered him to surrender his passports, and the Federal Police cancelled both his ordinary and diplomatic passports after he failed to comply, Agência Brasil reported, citing Reuters. Argentine opposition lawmakers asked President Javier Milei's government to say whether the senator crossed Argentine territory, MercoPress reported. Chinese President Xi Jinping, meanwhile, congratulated Lula on his re-election, according to Xinhua.