Brazil's currency and stock market plummeted on Monday. Investors believe that the re-election of Luis Inácio Lula da Silva as president will worsen the financial difficulties of Latin America's largest economy. Jim Reed, head of global macroeconomics at Deutsche Bank, said, “The market has already fully taken into account expectations of Bosonaro's victory. The election results completely disrupted the market rhythm... Investors originally expected fiscal consolidation to usher in a better window.” Bosonaro promised to implement a certain degree of austerity, while Lula made huge spending promises during the election campaign: free public transportation on weekends, personal debt relief, and increased welfare benefits. Critics accuse that these are campaign benefits offered to win votes. Investors are shorting the real one after another. According to derivatives giant CME, during the early trading session in London, the nominal trading volume of real related futures was about 2.4 billion US dollars, reaching about three times the average daily turnover this year. However, Aviva Investment Fund Manager Kurt Knowlson said that Lula had already announced a number of additional spending measures before the second round of voting, “which means that the starting pressure to start fiscal consolidation is higher now.” He added, “The reality is that unless the government comes up with a credible fiscal road map soon, it can only rely on weakening local currency and rising long-term interest rates and real interest rates to play a restraining role in the market.”

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