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Flavio Bolsonaro won the highest share of the vote in the first round of the Brazilian Presidential election last Sunday. As expected, no candidate reached the 50% threshold, so the second round of the vote (on 25 October) will see Bolsonaro face current President Luiz Inacio ‘Lula’ da Silva, who is standing for a fourth non-consecutive term. Bolsonaro, son of former President Jair Bolsonaro, outperformed opinion polls, taking 47% of the vote compared with 45% for Lula. Given the majority of the other candidates in the first round were also from the right wing of Brazilian politics, their votes are expected to transfer to Bolsonaro in the second round. Brazilian assets surged after the first round results became clear. The Brazilian Real was up 4.2% against the US Dollar while the main Brazilian equity index was up almost 8% on Monday. Bolsonaro is seen as the more likely candidate to implement spending cuts and reduce a budget deficit that is close to 10% of GDP.
Spanish Prime Minister Pedro Sanchez announced a snap election in order to “renew and broaden people’s support” for his Socialist party government. Spain was due for an election by late 2027 but will now face one on 29 November. The election comes after Sanchez’s government was defeated in its attempt to push through two bills relating to lower housing costs and reform to renters’ rights last Friday. Sanchez has been Prime Minister for eight years, but his minority government has been unable to pass a budget since 2022 and has found it next to impossible to pass major legislation.
IMF managing director Kristalina Georgieva said governments face “very tough political choices” while urging policymakers to curb spending to combat rising bond yields. Bond market volatility remains elevated, with yields moving higher, particularly in the Eurozone, led by France, where the mix of political risk, deficit concerns, public pushback on spending cuts and tax hikes is currently the most potent. Speaking in Singapore ahead of the IMF and World Bank meetings in Thailand next week, Georgieva noted that with global debt-to-GDP ratios close to 100%, excessive fiscal deficits and high debt servicing costs were a “major factor affecting the health of the global economy”. Georgieva said deficits had remained far too large since the pandemic, with fiscal consolidation plans “the need of the hour”, requiring “an urgent and comprehensive set of policy responses”. On the IMF meetings next week, she said they will discuss risks to a global economy that has faced shocks “with remarkable agility”. Georgieva warned this resilience was likely to be tested in the coming months, noting high energy prices and the rapid arrival of advanced AI as potential triggers for economic disruption.
By the numbers
29,000 – the increase in US Non-Farm Payrolls in September, below expectations of 90,000. The net revision to July and August’s data was -60,000. Unemployment climbed to 4.2% vs 4.1% previously. The softer data further eased expectations for a Fed hike this month, with a rate increase now just a 20% probability, having been 70% at the start of last week. A December hike is still seen as highly likely and is priced at 76% probability.
24 cents a gallon – the reduction in taxation proposed by President Trump by allowing the widespread use of tax-exempt ‘red’ or dyed diesel in the US. The fuel is typically reserved for use in agriculture and construction. Red diesel is exempt from the 24 cents/gallon federal diesel tax. Trump said his executive order would “allow anyone to purchase tax-free diesel for any reason”. Trump ruled out a ban on diesel exports last week after European countries agreed to release large volumes of diesel from stockpiles. The reduction in tax would still leave US diesel prices at levels previously unseen before the past two months.
The Investment Lens
The oil price continues to hover above $100/barrel even as we have seen crude flows from the Gulf recover close to levels seen before the conflict. Concerns the US could yet renew military attacks ahead of the US midterm elections were quashed by President Trump yesterday; his social media post also suggested talks with Tehran were taking place. Risks of a US response were seen as rising given the ramp-up in Iranian attacks on shipping attempting to transit the Strait of Hormuz since late September. US Vice President JD Vance said Iran was hitting some ships, but “not enough to stop the flow of oil and gas”. Vance told Reuters the US was still open to an agreement and was in talks with Iranian President Masoud Pezeshkian and Foreign Minister Abbas Araghchi.
While oil continues to trade in narrow range, the latest attacks have pushed freight rates even higher, with the cost of carrying oil from the Persian Gulf to China rising to a record $1.3 million a day, up from an average $60,000 a day in 2025. The use of tankers to ‘shuttle’ oil across the Strait of Hormuz appears to be working, but is using up a large amount of available shipping, leaving disruption elsewhere. Meanwhile, while the relative restoration of oil supplies is a positive, the rebuilding of inventories that have been significantly depleted globally, will take time. Any further supply issues, either from a reduction in shipping transits or further attacks on pipelines now pose upside risks to oil, not least given the ‘buffer’ of inventories that has helped keep a ceiling on oil prices over the past seven months is much reduced. Furthermore, while oil continues to dominate the headlines, risks around gas supplies and pricing, and the availability of refined products are still significant. The Iran conflict may well be in stalemate, but the consequences for commodity supply chains continue to move, and not in the right direction.
