9%. That was the drop in Brazilian real futures, contracts that work as a bet on where the dollar will trade in the coming months, in the first deals after Luiz Inácio Lula da Silva's reelection was confirmed on Sunday (25), according to UOL Economia. In practice, the move points to a much more expensive dollar when markets open on Monday (26), which usually feeds into fuel prices, imported goods and airfares in Brazil. If the exchange rate is near R$5, a 9% slide in the real would push the dollar toward R$5.50.
Abroad, the fall was even sharper. The main exchange-traded fund (ETF, a fund whose shares trade on a stock exchange) linked to Brazil's Ibovespa index fell 11%, according to UOL, while the EWZ, a New York-listed fund that mirrors the MSCI Brazil index, plunged as much as 18.5% by 9:16 p.m. Brasília time, to US$34.69, according to InfoMoney.
Among individual companies, Petrobras share receipts traded in New York sank nearly 12%, and Itaú's fell 13.6%, InfoMoney also reported. For a Brazilian household following in reais, it is as if a R$1,000 position in those shares had shrunk to about R$880 in a few hours.
The reaction is the reverse of the so-called "trade Flávio", the nickname for market bets on a victory by Senator Flávio Bolsonaro, son of former president Jair Bolsonaro. On Friday (23), fund managers added to positions betting on a rising stock market and a weaker dollar, and the EWZ closed up 1.77% at US$42.59, according to Veja magazine. Lula won by 51.75% to 48.25% with 98% of precincts counted, the first time a candidate defeated in the first round went on to win a Brazilian presidential runoff.
Explainer: what real futures are and why they matter
The real future is a contract traded on B3, Brazil's stock exchange, in which investors bet on the dollar rate for a future date. With the regular session closed on Sunday, these contracts and overseas derivatives acted as an early thermometer of investor sentiment. Veja cautions, however, that these markets are thinly traded outside normal hours, so the recorded drop does not guarantee equal losses at Monday's open.
"A Lula victory was not our base case. We worked with a slight favorite status for Flávio Bolsonaro, and the market saw the possibility of a change of government and a more liberal agenda," Gustavo Sung, chief economist at Suno Research, told InfoMoney. He said Monday "can be quite volatile", with possible stress in the government bond market and the futures interest rate curve, which sets the cost of credit in the country.
The backdrop to the distrust is fiscal. According to Folha de S.Paulo, the market estimates that Lula's campaign promises add up to more than R$100 billion in spending, with at least R$40 billion as early as next year, and that the 2026 deficit hovers around R$80.9 billion, against the R$18.6 billion surplus planned in the budget. The interest bill on the public debt, which jumped from R$260 billion to over R$1 trillion a year, already consumes the equivalent of more than R$2.7 billion a day.
The first real test will be the opening of B3 and the foreign exchange market on Monday. According to Veja, the speed of Sunday's correction shows investors have already begun unwinding the election bets they placed in the final stretch of the campaign.