The strong showing for Jair Bolsonaro and his party in yesterday’s general election in Brazil has increased the chances of pro-market reform. This is likely to prompt an initial rally in local markets – we think the real might rise by another 3-5% against the dollar in the coming days and dollar bond spreads could narrow by about 30bp. Nonetheless, with Congress now even more fragmented, major fiscal reforms, particularly to pensions, still face substantial hurdles.
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