Brazilian stocks crashed 14% after President Luiz Inácio Lula da Silva won re-election and his rival challenged the result. The vote caught many investors off guard, as they had bet on a win for Flávio Bolsonaro.
Trading got ugly fast. Brazil's Bovespa index sank over 10% right after markets opened, which forced a half-hour halt to trading. By the close, it had logged its worst daily loss since the pandemic first hit markets.
And the real took a hit as well. Brazil's currency lost over 8% versus the U.S. dollar, putting it on track for its worst one-day slide since early 1999. A rough day for anyone holding Brazilian assets.
Debt markets had their share of pain. The yield on Brazil's dollar-based 10-year bonds rose by over 0.2 percentage points, reaching about 6.45%. Local 10-year debt saw a far steeper jump, with yields climbing more than two points to nearly 15%.
Before the vote, traders had grown keen on Bolsonaro. The right-wing candidate had ties to President Trump and was seen as a safer bet for investors. Brazilian shares had gained value, while bond yields had eased as his chances of a win drew more interest.
Dev Ashish, a Latin America economist at Société Générale, linked the market slump to traders having to drop their bets on Bolsonaro. Those positions had built up before the election, and the surprise result left investors rushing to adjust.
Still, the shock did not spread far into U.S. markets. Major American stock indexes closed higher, and yields on 10-year Treasury bonds edged down. Argentina had a different day, though, with its dollar-based 10-year bond yield rising by 0.4 percentage points.
Next up, investors will be watching Lula's picks for key cabinet posts. Ashish sees a lot riding on whether Vice President Geraldo Alckmin gets a major say on the economy, how much sway centrist parties have in Congress, and what fiscal plans the new government puts forward.
Trading got ugly fast. Brazil's Bovespa index sank over 10% right after markets opened, which forced a half-hour halt to trading. By the close, it had logged its worst daily loss since the pandemic first hit markets.
And the real took a hit as well. Brazil's currency lost over 8% versus the U.S. dollar, putting it on track for its worst one-day slide since early 1999. A rough day for anyone holding Brazilian assets.
Debt markets had their share of pain. The yield on Brazil's dollar-based 10-year bonds rose by over 0.2 percentage points, reaching about 6.45%. Local 10-year debt saw a far steeper jump, with yields climbing more than two points to nearly 15%.
Before the vote, traders had grown keen on Bolsonaro. The right-wing candidate had ties to President Trump and was seen as a safer bet for investors. Brazilian shares had gained value, while bond yields had eased as his chances of a win drew more interest.
Dev Ashish, a Latin America economist at Société Générale, linked the market slump to traders having to drop their bets on Bolsonaro. Those positions had built up before the election, and the surprise result left investors rushing to adjust.
Still, the shock did not spread far into U.S. markets. Major American stock indexes closed higher, and yields on 10-year Treasury bonds edged down. Argentina had a different day, though, with its dollar-based 10-year bond yield rising by 0.4 percentage points.
Next up, investors will be watching Lula's picks for key cabinet posts. Ashish sees a lot riding on whether Vice President Geraldo Alckmin gets a major say on the economy, how much sway centrist parties have in Congress, and what fiscal plans the new government puts forward.
