Switch to seedless. Get 30% off with SWITCH30 till Oct 26Lula re-election shakes markets, prediction tools questioned
6.6 Markets Lula’s re-election triggered a sharp drop in the real and stocks, while prediction markets failed to forecast the outcome, increasing volatility and uncertainty over Brazil’s fiscal direction.
The re-election of Luiz Inácio Lula da Silva in Brazil led to significant turbulence in financial and prediction markets. The Brazilian real depreciated by nearly 10%, and the iShares MSCI Brazil ETF (EWZ) fell as much as 27% in pre-market trading. Major companies, including Petrobras and Itaú, experienced double-digit stock declines. Investors quickly unwound positions that had bet on fiscal austerity, concerned about Lula’s promises of increased public spending and a slower pace of fiscal consolidation. This uncertainty has kept Brazil’s risk premium elevated, with markets awaiting a credible fiscal plan from the new administration. Prediction markets such as Polymarket and Kalshi had given Flávio Bolsonaro over an 80% chance of victory, yet Lula secured 51.8% of the vote. This outcome has sparked debate about the reliability of prediction markets as forecasting tools. Meanwhile, a more conservative Congress is expected to complicate governance, potentially limiting Lula’s legislative agenda and sustaining volatility in Brazilian assets.
