Real Yields Lead as Election Rally Cools

RoboMacro ResearchAlso todaySee the US Macro Daily

Real Yields Lead as Election Rally Cools

49.20 S&P Global Services PMI7,740m Trade Balance

Bovespa204,302.00-0.74%

USD/BRL5.02+0.80%

EUR/BRL5.61+0.19%

Vale13.61-3.34%

Market Snapshot

Asset	Level	Change
Bovespa	204,302.00	-0.74%
USD/BRL	5.02	+0.80%
EUR/BRL	5.61	+0.19%
Vale	13.61	-3.34%
Petrobras	23.99	+0.80%
WTI Crude	91.74	+3.92%
Gold	4,152.10	+0.28%
Bitcoin	82,914.10	-0.43%
Brazil 5Y Govt Yield	12.68%	-23 bp
Brazil 10Y Govt Yield	12.79%	-21 bp

Prior Economic Events

Data	Prior	Cons	Actual
S&P Global Services PMI	50.50	-	49.20
Trade Balance	7,390m	7,190m	7,740m

Today's Economic Events

Data	Prior	Cons	Time

Friday (2026-10-09)
Inflation Rate Month-over-Month	-0.32	0.73	08:00
Inflation Rate Year-over-Year	4.22	4.50	08:00

Brazilian fixed income outperformed, with the 5-year yield easing 23 bp to 12.68% and the 10-year down 21 bp to 12.79%, as markets price a friendlier fiscal and monetary path post-election.
The Bovespa slipped 0.74% to 204,302 despite a record $2.01 billion single-day foreign equity inflow on October 5, with Vale down 3.34% offsetting Petrobras gains.
September services PMI printed 49.2, dipping back below the 50 expansion threshold, while the September trade surplus of $7.74 billion beat consensus by over $500 million.

Yesterday's Recap

Brazilian markets delivered a classic rotation day, with rates leading and equities lagging. Government bond yields extended their post-election rally, the 5-year easing 23 bp to 12.68% and the 10-year falling 21 bp to 12.79%, as investors grew more confident that the next administration will pursue a credible fiscal framework and that the central bank will have room to begin normalizing policy. The currency moved the other way, with USD/BRL strengthening 0.80% to 5.02, though JPMorgan reportedly raised its real targets to the 4.70–4.80 range, viewing the real as Latin America's premier carry trade.

Equities couldn't hold their election-week momentum: the Bovespa fell 0.74% to 204,302, weighed down by Vale's 3.34% decline as iron ore sentiment softened, while Petrobras added 0.80% helped by WTI crude's 3.92% surge to $91.74. On the data front, the S&P Global services PMI printed 49.2, down from 50.5 and back into contraction, suggesting the services engine is cooling. The trade balance, however, was a bright spot: September's surplus reached $7.74 billion, comfortably above the $7.19 billion consensus and the prior $7.39 billion.

The World Bank also lifted its 2026 growth forecast for Brazil, adding a fundamental tailwind to the rates rally.

The Day Ahead

Attention turns to inflation. September IPCA figures are due Thursday at 8:00 a.m. local time, with the monthly reading expected at 0.73% after August's -0.32% seasonal dip, and the year-over-year rate seen accelerating to 4.50% from 4.22%.

A print above consensus would complicate the easing narrative that has driven the bond rally, so the market will scrutinize the core components and services inflation particularly closely. The YoY figure matters for the COPOM's inflation projections and the timing of any pivot from the current 13.75% Selic. Beyond the CPI, watch for continued flow data confirming whether the record foreign equity inflows of early October persist, and any further signals from the runoff campaign on fiscal policy.

With the election surprise still reverberating, positioning adjustments could amplify moves around the inflation release.

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Other Economic Notes

The external accounts remain a pillar of strength, with the September trade surplus of $7.74 billion underscoring the agricultural and mineral export machine's resilience. Yet the domestic picture is more mixed: the services PMI's slip to 49.2 hints that momentum in the largest sector of the economy is fading just as policy remains restrictive. The World Bank's upward revision to 2026 growth suggests international institutions see more resilience than the soft PMI implies, likely reflecting stronger terms of trade and investment prospects under a more market-friendly political outlook.

The tension between firm growth forecasts and cooling activity surveys will frame the debate over how quickly the economy can absorb lower rates without reigniting inflation.

Global Macro News

Energy is the story of the moment, with WTI crude surging 3.92% to $91.74, a meaningful tailwind for Petrobras and Brazil's oil export revenues, though it raises imported inflation risks. Gold edged up 0.28% to $4,152.10, reflecting persistent haven demand, while Bitcoin slipped 0.43% to $82,914. In emerging markets more broadly, the World Bank's regional outlook had Colombia outpacing both Brazil and Mexico in 2026, a relative-growth call that could influence allocation within LatAm.

India's central bank delivered a 25 bp hike, framed as pre-emptive tightening in a challenging macro environment, a reminder that EM central banks remain vigilant on inflation even as Brazil's market prices the opposite direction. ↓ p.3

Continuation

Global Macro News (continued)

European politics added noise, with Trump-related theater in Strasbourg, while the Swiss franc weakened ahead of reserve data. For Brazil, the commodity complex and the dollar's trajectory remain the key exogenous variables.

BCB Watch

The Selic stands at 13.75%, and the market is increasingly betting the easing cycle begins sooner rather than later. The post-election rally in fixed income, with the 5-year down 23 bp and 10-year down 21 bp in a single session, reflects conviction that a new government's fiscal credibility would allow the COPOM to pivot without destabilizing inflation expectations. Analysts cited in the local press are already positioning for the turn, with real estate funds recommended as vehicles to capture the coming Selic decline.

The September IPCA, expected at 4.50% year-over-year versus the current 4.22%, will be pivotal: a print at or below consensus would validate the rates rally, while an upside surprise could force a reassessment of the easing timeline. The COPOM's communications will need to balance a cooling services sector, PMI at 49.2, against headline inflation approaching the 4.50% mark. The central bank's inflation-targeting framework faces its customary test in an election-transition period, and the committee's forward guidance in coming weeks will be scrutinized for hints on the sequencing of cuts.

For now, the bond market is voting for a friendlier regime, and the data through year-end will determine whether that conviction holds.

Brazil Macro Daily(Beta Mode)