By Paula Arend Laier
SAO PAULO (Reuters) – The result of the first round of the election in Brazil makes it essential for Luiz Inácio Lula da Silva to move towards the center quickly, as well as increasing the chances of Jair Bolsonaro winning, which explains a positive reaction from the markets this year. Monday, assess strategists at JPMorgan.
Lula (PT) was the most voted in Sunday’s presidential election, but he will contest a tense second round with Bolsonaro (PL), who surpassed what was estimated by the main opinion polls and was just over five points away from the former president.
In the case of PT, the team at the US bank also added that the outcome of the previous day makes it crucial for the former president to present his macroeconomic plan, perhaps even giving a firmer view of who his finance minister will be. Bolsonaro has already indicated that Paulo Guedes will continue in the Economy.
Strategists also drew attention to the big surprises at the state level, where candidates linked to Bolsonaro did very well in both gubernatorial and national congressional elections.
This scenario, they evaluated in a report after the first results of the day before, should encourage Bolsonaro’s campaign at the beginning of the second round and the results in the states may be a hint that proportionally more votes may migrate to the candidate in the second round.
“Still, there aren’t many votes out there to win… It will be a very combative second round.”
Last week, the JPMorgan team estimated that the most likely scenario for the first round of the presidential race was Lula ahead of Bolsonaro by 5% or less.
“Our view is that the market is bullish regardless of the elections”, they stated in the report dated Sunday, signed by Emy Shayo Cherman, Cinthya M. Mizuguchi and Pedro Martins Junior. “The post-election period should show a moderate economic policy and there is an eventual positive chance that Lula, if elected, will appoint a pro-market economic team.”
In addition, they added, Brazil was the first country to stop raising interest rates and the Central Bank indicated that rates could start to fall in June.
“Valuations are attractive, foreign flows are ok, redemptions of funds dedicated to local shares are decreasing”, they added, also citing that, from a geopolitical point of view, Brazil is very well positioned, in addition to being a commodity rich.
This Monday, around 1:40 pm, the Ibovespa, a benchmark for the Brazilian stock market, advanced 4.58%, while the spot dollar retreated 4.3%, to 5.1617 reais.
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