Historic Selloff Hits Brazil's Markets After Lula Re-election

Brazil’s financial markets suffered a historic selloff Monday after Luiz Inácio Lula da Silva’s re-election, with the benchmark Ibovespa stock index plunging 13.88%, B3 triggering a circuit breaker to halt trading and the real sliding sharply against the dollar as authorities moved to stabilize markets.

Lula’s victory in Sunday’s runoff was confirmed by Brazil’s electoral court, the TSE, which said he won 64,256,232 votes, or 51.79% of valid ballots. The result served as the immediate trigger for Monday’s market reaction, though the selloff quickly became the dominant story.

The Ibovespa closed at 176,608.23 points, down 13.88% on the day, according to market reports. At its worst, the index fell to 169,516.43 points intraday, a drop of more than 17%, before recovering some ground by the close. The move was widely described as the index’s steepest one-day decline since the market turmoil of March 2020, when the COVID-19 pandemic shook global trading.

The scale of the fall prompted B3, Brazil’s exchange operator, to activate a circuit breaker, an automatic safeguard that temporarily pauses trading after steep losses to help preserve orderly markets. The halt affected cash equities, exchange-traded funds and certain derivatives for 30 minutes. B3 said trading would resume through an auction from 10:30 a.m. to 10:35 a.m. Trading volume was exceptionally heavy, reaching roughly R$88.6 billion, far above an average session of about R$25 billion.

In currency markets, Reuters reported that the spot dollar, known in Brazil as the dólar à vista, closed at R$5.4066, up 8.36% against the real after touching an intraday high near R$5.6059. Reuters said that was the dollar’s largest daily gain versus the real since March 2003. Other official Brazilian exchange-rate series posted slightly different figures because they measure different reference rates.

Authorities responded with emergency operations in both bond and currency markets. Reuters reported that the Tesouro Nacional, Brazil’s National Treasury, carried out an extraordinary buyback of government debt, including about R$7.1 billion in NTN-F bonds, and canceled scheduled bond auctions planned for Oct. 27 and Oct. 29. Brazil’s central bank also sold or rolled 75,000 foreign-exchange swap contracts for Nov. 3, a step aimed at supplying hedge protection and easing pressure in the currency market.

Analysts and market participants said the rout reflected a fast unwinding of positions built on expectations that Flávio Bolsonaro would win after leading the first round, combined with investor concern about fiscal policy and the potential for heavier state intervention under Lula. Those market interpretations, rather than the election result alone, helped explain why the reaction was so severe.