Flávio’s strong election showing to boost Brazil’s markets

Flávio Bolsonaro’s better-than-expected performance in the first round of Brazil’s presidential election is likely to boost the real and equities later today, perhaps by 3-5%, and lead to a drop in local currency bond yields. If Flávio wins the second-round, his presidency would bring better prospects of fiscal tightening, structural reforms and improved relations with the US. His party’s strong performance in the congressional elections has also reduced implementation risks to his economic agenda, although these haven’t disappeared.