Lula's election win triggers 20% drop in Brazil ETF

Lula won the Brazilian runoff against Flavio Bolsonaro, securing a fourth term, a first for the country. The major Brazil ETF lost 20%, partly due to currency losses, while asset manager XP's stock halved. Petrobras and Ambev fell 14% each, and shares of Nubank, Petrobras, and Ambev fell by approximately 20% according to one report, with the Brazilian stock exchange triggering a circuit breaker to halt trading temporarily. Prior to the election, investors favored Flavio Bolsonaro, with the prediction market Calci showing a 75% probability of his win on Friday. The shock spread to Europe, where Telefonica dropped 6.4%, Santander fell 3.1%, and Galp lost nearly 11%. In France, Moody's confirmed the A3 credit rating with a negative outlook, and 10-year bond yields fell below 4.9%. WTI crude oil fell nearly 2% to just over $101 per barrel, while silver traded near $54, 25% below its 200-day moving average. Lula faces significant challenges implementing reforms because the center parties, essential for legislative passage, have lost influence as the congress shifted rightward after October 5. He can appoint four new justices to the supreme court, extending his influence beyond his term. Brazil's base interest rate is 13.75%, resulting in real interest rates of 9% after inflation. Arisla dos Santos argues that high interest rates make social justice impossible in Brazil and that the primary risk is a lack of reform rather than drastic leftist measures like expropriation.