Brazilian assets rally as Bolsonaro wins first round; Spain calls snap election

Brazilian stocks and the nation’s currency rallied as right-wing challenger Flávio Bolsonaro won the first round in the general election, although he fell short of the majority needed to claim the presidency from incumbent Luiz Inácio Lula da Silva.

The euro remained weak and European stock markets were mixed as Spain’s prime minister Pedro Sánchez called a snap election after his minority governing coalition lost a vote to pass emergency housing measures, while Banque de France governor Emmanuel Moulin urged the government to clean up the public finances.

Stocks on Wall Street continued their march higher with Nvidia on track to close at a new record, shrugging off another rise in government bond yields, while oil prices eased on reports that Saudi Arabian-backed Yemeni forces had retaken a key port on the Red Sea.

And futures are pointing to a positive start to the trading day for the ASX, with the New Zealand Institute of Economic Research’s quarterly survey of business opinion the main piece of data on the local calendar today.

This is Brazil

The New Zealand dollar hit a six-and-a-half year low against Brazil’s real, trading at 2.7931 reais at 7am in Auckland from 2.9197 reais yesterday after Bolsonaro won 47% of the vote in the first round of the general election, beating incumbent Lula’s 45.2% share. The two will contest a run-off vote on Oct 25.

The São Paulo Stock Exchange’s Bovespa Index jumped almost 9%, while Nasdaq-listed Brazilian investment manager XP surged 33% and New York Stock Exchange-listed digital bank Nu Holdings advanced 14%.

Stocks on Wall Street were generally stronger, with the tech-heavy Nasdaq Composite climbing 1.1%, while the S&P 500 was up 0.7% in late trading and the Dow Jones Industrial Average increased 0.3%, with Visa, Nvidia and Microsoft leading the blue-chip index higher.

The artificial intelligence trade got a boost from France’s Schneider Electric agreeing to buy software maker PTC in a deal valuing the US firm at US$23 billion.

Investors shrugged off the continued weakness in bond markets, with the yield on 10-year US treasuries climbing 8 basis points to 5.35%, widening the gap with New Zealand’s equivalent at 5.05%.

The kiwi dollar remained subdued, trading at 55.92 US cents at 7am from 55.88 cents yesterday.

“Over the past week, near-term central bank tightening expectations have retreated, yet bond yields have continued to climb,” ANZ New Zealand economists said in a note. “This suggests the selloff in bond markets is not about central bank credibility but rather reflects structural drivers, ranging from quantitative tightening and heightened competition for capital to a lack of political appetite for reducing government borrowing.”

Thin inventories

Meanwhile, oil prices fell with Brent crude oil futures down 1.4% at US$100.80 a barrel at 7am amid reports that Yemeni forces took control of the Bab el-Mandeb Strait on the Red Sea from Houthi militants, who’ve been mounting attacks on Saudi infrastructure.

Separately, Saudi Aramco chief executive Amin Nasser said oil stockpiles were “scarily thin”, and that it would take up to two years to rebuild inventories after the Middle East conflict.

European stock markets were mixed, with the UK’s FTSE 100 up 0.3% and Germany’s DAX nudging up 0.1%, while France’s CAC 40 dropped 0.8%.

French central bank governor Moulin told the Financial Times that Europe’s second-biggest economy risked being strangled by interest rates if it didn’t get its public finances in order, with the nation’s government bond yields rising faster than its peers.

Elsewhere in Europe, Spanish prime minister Sánchez called a snap election after losing a parliamentary vote on measures to address the dramatic decline in access to affordable housing.

Meanwhile, the Financial Times reported Canada’s La Caisse had tightened its control of Kiwi-founded fintech FNZ, leading to the recent departure of chief executive Blythe Masters.

Wall Street’s gains are set to continue into the antipodes, with futures pointing to a 0.2% gain for the S&P/ASX 200 index when trading opens across the Tasman. The kiwi dollar fell to 80.27 Australian cents at 7am from 80.57 cents yesterday.

The NZIER’s quarterly business confidence survey is the main piece of data on the local calendar, while the leaders’ debate between National’s Christopher Luxon and Labour’s Chris Hipkins comes after the latest RNZ-Reid Research poll showed the opposition Labour party continued to lead National amid declining support for both major parties.

Thinly traded contracts on prediction markets Kalshi and Polymarket are pricing Christopher Luxon as the frontrunner to be prime minister after the election.

Reporting by Paul McBeth. Image from Matheus Câmara da Silva on Unsplash.