Flávio Bolsonaro leads Lula into Brazil's October 25 runoff

Senator Flávio Bolsonaro, son of former president Jair Bolsonaro, led President Luiz Inácio Lula da Silva in Brazil's presidential vote on Sunday, and the two will meet again in a runoff on October 25.

Bolsonaro had 47.04% of the valid vote, which leaves out blank and spoiled ballots, and Lula, of the Workers' Party, the PT, had 45.15%. The gap was 1.89 percentage points with 99.96% of polling stations counted, the narrowest first-round margin since Brazil returned to direct presidential elections in 1989. The previous narrowest was 5.23 percentage points, in 2022.

Neither man had the more than 50% a first-round win requires, and the electoral court has confirmed the runoff.

"I confess to you that I was convinced I was going to win the election in the first round," Lula said Sunday night.

Saturday's final Datafolha poll had him ahead, 45% to Bolsonaro's 42%, a lead of 3 percentage points, outside that survey's margin of error of 2 percentage points. Quaest had Lula at 46% and Bolsonaro at 45%.

"It is the end of the PT era," Bolsonaro said.

Brazil's electoral court barred Jair Bolsonaro from running for office for eight years in June 2023, so Sunday's ballot carried his son's name, not his.

The next four candidates together took 7.58% of the valid vote, more than the gap between the two finalists.

Romeu Zema, the former governor of Minas Gerais, finished sixth and indicated Sunday night that he would back Bolsonaro.

"Wherever the PT is, we will be against it," he said.

Augusto Cury, Renan Santos and Ronaldo Caiado had not declared for either man through Sunday night.

Asked before the vote how a runoff would go, the polls pointed opposite ways. Datafolha had Lula at 47% and Bolsonaro at 46%. Quaest had Bolsonaro at 44% and Lula at 42%. Both had a margin of error of 2 percentage points.

What a Bolsonaro win would change

Early Monday, October 5, Brazilian and U.S. stocks had not opened on the count.

After Jair Bolsonaro's strong first round in 2018, the real rose 2% on the Monday.

The fund that tracks Brazilian stocks, AEWZ, follows the MSCI Brazil 25/50 Index, a Brazil stock index that caps the largest holdings. Vale, Itaú, Nu and Petrobras are the largest holdings. It last traded on Friday, October 2, at $38.19.

"The markets are still not pricing either election outcome," Andrea Kiguel, a Barclays currency and rates strategist for the Americas, said on Monday, September 21.

J.P. Morgan's scenarios, as of Saturday, October 3, put the dollar at 4.90 Brazilian reais if Bolsonaro wins the presidency and at 5.50 if Lula does. On Friday a dollar bought 5.22 reais.

In a note on Tuesday, September 22, the bank's fixed-income strategists said forward rates could fall by an average of 160 basis points under a market-friendly change of power, and rise by 90 basis points if the incumbent wins. A basis point is a hundredth of a percentage point.

In the same note, a shift to the bank's improvement scenario would mean 28% upside for the MSCI Brazil index from levels that day. The fund tracks the capped index, not the one in that scenario.

Sources on Bolsonaro's campaign said in August that the team was drafting a spending rule to keep spending growth below revenue growth and let it vary with the public debt. It would replace the cap Lula governs under. That cap limits spending growth, after inflation, to between 0.6% and 2.5% a year, and to no more than 70% of revenue growth.

His Liberal Party is projected to hold 28 Senate seats, the largest bloc in the 81-seat chamber, and short of a majority.

Bolsonaro's program does not mention Petrobras, one of the fund's largest holdings. Lula's program names the company 11 times.

Only Zema has said where his voters go. The bank's two currency paths still depend on which way a pool larger than Sunday's lead breaks.