Analysis: Brazil markets, on shaky foundations, rocked by Lula candidacy bombshell

The prospect of political polarization between Lula and right-wing President Jair Bolsonaro, leading to looser fiscal policy pledges from the two likely candidates with all the implications that has for monetary policy - have many investors gasping for air.

RIO DE JANEIRO, BRAZIL - Brazil’s financial markets were already shaky from a worsening fiscal outlook, political logjam and a devastating second wave of COVID-19 before Monday’s bombshell that leftist ex-President Luiz Inacio Lula da Silva could contest next year’s presidential election.

They have now been rocked to their foundations - even if the October 2022 vote remains far on the horizon.

The prospect of political polarization between Lula and right-wing President Jair Bolsonaro, leading to looser fiscal policy pledges from the two likely candidates and the stalling of the government’s market-friendly economic reform . . .

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