Brazil's economy inched forward in August, with the central bank's activity index up 0.34% from July and 1.21% versus a year earlier. That monthly print beat the 0.20% median forecast from analysts polled by Bloomberg, a small positive against a backdrop of cooling momentum.
Discontent over the economy, plus controversy tied to the Supreme Court, helped tilt the mood against the establishment and gave the right-wing challenger a lift. On Oct. 4, Flávio Bolsonaro outpolled Lula, making him the frontrunner heading into a runoff later this month. Local assets initially climbed on the idea that the 45-year-old, whose father is former President Jair Bolsonaro, could prevail and tighten fiscal outlays.
Lula, 80, has looked to narrow the lead by ramping up street turnout and advancing a flagship promise to scrap Brazil's six-day workweek. The Senate signed off on that change on Wednesday, giving his campaign a late policy win.
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The bottom line: growth is lukewarm, while election odds are steering market moves. Investors saw an initial rally on expectations of tighter spending under a Bolsonaro win, and Lula's push on the workweek shows policy could shift quickly. Expect asset prices to track runoff dynamics and any signals on fiscal discipline.
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