Real Rallies, Yields Sink on Bolsonaro Surge

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Real Rallies, Yields Sink on Bolsonaro Surge

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

Bovespa205,835.00-0.52%

USD/BRL4.97-0.53%

EUR/BRL5.57-0.65%

Vale14.08-0.49%

Market Snapshot

Asset	Level	Change
Bovespa	205,835.00	-0.52%
USD/BRL	4.97	-0.53%
EUR/BRL	5.57	-0.65%
Vale	14.08	-0.49%
Petrobras	23.80	-1.41%
WTI Crude	89.53	+0.10%
Gold	4,151.30	-0.86%
Bitcoin	83,949.59	-1.88%
Brazil 5Y Govt Yield	12.91%	-120 bp
Brazil 10Y Govt Yield	13.00%	-117 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

Flávio Bolsonaro's shock first-round win over Lula ignited a broad Brazil rally: the real firmed 0.53% to 4.97 against the dollar while the 10-year government yield plunged 117 bp to 13.00%.
September services PMI slipped to 49.2 from 50.5, dipping into contraction, but a $7.74bn trade surplus underscored export strength.
August IPCA inflation held at 4.22% year-over-year; September prints due Friday are expected to show a 0.73% monthly rise as disinflationary base effects fade.

Yesterday's Recap

Brazilian markets extended a powerful post-election rally as investors repriced the October 25 runoff between Flávio Bolsonaro and President Lula. The real strengthened 0.53% to 4.97 per dollar, and the euro crossed at 5.57, down 0.65%. The fixed-income rally was dramatic: the 5-year government yield collapsed 120 bp to 12.91% and the 10-year fell 117 bp to 13.00%, signaling a sharp drop in term premia as markets priced a more market-friendly policy mix.

Equities lagged the FX and rates move, with the Ibovespa easing 0.52% to 205,835 as Petrobras shed 1.41% to 23.80 and Vale slipped 0.49% to 14.08. On the data front, the S&P Global services PMI fell to 49.2 from 50.5, dipping below the 50 expansion threshold for the first time in months. The trade balance, by contrast, delivered a $7.74bn surplus, beating the $7.19bn consensus and exceeding August's $7.39bn result.

Corporate news added texture: Cosan is rethinking asset sales after halving its debt load, while Norges Bank lifted its stake in C&A Modas above 5%.

The Day Ahead

The calendar is quiet until Friday, when IBGE releases September consumer inflation at 8:00 local time. Consensus looks for a 0.73% monthly rise, a sharp swing from August's -0.32% deflation print, and a 4.5% year-over-year rate, up from 4.22%. The reacceleration largely reflects base effects rolling off and seasonal food and fuel dynamics rather than a genuine demand-led pickup, but the details — services inflation in particular — will matter for the BCB's path.

A hotter-than-expected services component could complicate the narrative of rapid disinflation that underpins the market's dovish repricing. With the runoff now three weeks away, political headlines will continue to drive the real and rate curves in the interim. Watch for fiscal policy signals from both campaigns, as the market's enthusiasm rests partly on expectations of spending discipline.

Other Economic Notes

The election shock has transformed the fiscal conversation. ↓ p.2

Page 1

Other Economic Notes (continued)

A Bolsonaro-aligned victory is being read as a mandate for privatization and lighter regulation, with analysts flagging potential gains for US-Brazil trade ties. The rally in Cosan's fortunes illustrates the broader dynamic: improved market conditions are easing financing constraints for leveraged conglomerates, potentially delaying asset sales and supporting equity valuations. Meanwhile, the trade surpluses — September's $7.74bn following August's $7.39bn — continue to anchor the external accounts, driven by agricultural and mineral exports.

The services PMI dip to 49.2 bears watching, however, as it suggests domestic demand momentum is softening just as the political cycle peaks.

Global Macro News

Global risk sentiment offered a mixed backdrop. Oil edged up 0.10% to $89.53, supportive for Petrobras and the trade balance, though the stock's 1.41% decline suggests domestic factors dominated. Gold fell 0.86% to $4,151 and Bitcoin dropped 1.88% to $83,950, hinting at modest profit-taking across alternative assets.

In FX, Morgan Stanley's James Lord flagged room for further euro weakness toward $1.10, a call with implications for EUR/BRL crosses already trading at 5.57. Japan's real wages rose for an eighth straight month, the longest streak in nearly a decade, keeping BOJ normalization expectations alive. European data disappointed, with German orders collapsing, while Iran's central bank moved to reassure markets on FX availability.

↓ p.3

Continuation

Global Macro News (continued)

For Brazil, the key external variables remain the commodity complex and the dollar's trajectory into the US election season.

BCB Watch

The Selic stands at 13.75% following the September 29 meeting, and the market's post-election repricing — nearly 120 bp off the 5-year in two sessions — implies growing conviction that the tightening cycle's terminal level will not need to be defended for long. The BCB's communications have emphasized data dependence, and Friday's IPCA will be the first test of whether the 4.22% August reading marks a durable plateau or a pause in disinflation. The services PMI's slip to 49.2 strengthens the case that activity is cooling, consistent with the committee's restrictive stance doing its work.

Yet the 4.5% consensus for September's year-over-year print suggests inflation remains above the 3% target midpoint, limiting room for near-term easing signals. The political shift adds a new dimension: a market-friendly fiscal outlook would lower the risk premium the BCB has cited as a persistent source of imported and second-round inflation pressure. Expect the COPOM to maintain its cautious, meeting-by-meeting guidance, resisting pressure to validate the market's aggressive easing bets prematurely.

The October 25 runoff looms as the pivotal event for the rate curve's direction into year-end.

Brazil Macro Daily(Beta Mode)