From Selloff to Samba

October 26, 2026

Elias Haddad

Brazil Lula’s win sets up pain before gain.

Quiet day ahead of a packed week.

Get the full outlook in our Drivers for the Week Ahead.

Crude oil prices retreated to $114.00 a barrel after hitting $117.45 on Friday, the highest since April 30. US equity futures are up, 10-year Treasury yields are holding just under 5%, and the dollar index (DXY) is little changed near Friday’s high. EUR/USD remains above key support at 1.1200 as Germany’s IFO business expectations index unexpectedly rose in October to its highest level since February 2022.

Today’s calendar is light, with the October Dallas Fed manufacturing activity index due. Markets will take their cue this week from Fed, ECB, BOJ, BOC, and RBNZ policy decisions. The UK budget and Australian CPI data also warrant attention. Outside the G10, Israel’s election takes center stage, alongside central bank decision in Chile, Colombia, and Thailand.

BRAZIL

Lula’s surprise reelection puts Brazilian assets at risk in the short-term but could set up a buying opportunity. Luiz Inácio Lula da Silva secured a fourth presidential term when prediction markets assigned an 80% probability to a Flávio Bolsonaro victory. As such, BRL is poised to unwind its rally following Bolsonaro’s strong first round showing earlier this month.

Lula’s greater tolerance for rising debt adds to BRL headwinds. Brazil’s gross public debt has risen from 71.7% of GDP when Lula took office in January 2023 to 83.0% of GDP in August 2026, the highest since 2021.

However, legislative constraints should keep BRL weakness in check. Lula faces a conservative Congress and needs centrist support to pass legislation, limiting the scope for runaway fiscal expansion. Importantly, Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense remain key structural tailwinds for BRL.

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