By Mike Dolan
Oct 26 (Reuters) – A potentially pivotal week for US and world markets kicked off with an election surprise in Brazil, as President Luiz Inacio Lula da Silva confounded forecasts to win his fourth term in office – a bad miss by prediction markets.
Investors had been betting right-wing candidate Flávio Bolsonaro, son of the impeached former President Jair Bolsonaro, would win, bidding up Brazilian stocks, bonds and the real in recent weeks on expectations of steep spending cuts, deregulation and closer ties with Donald Trump’s White House.
But those gains are set to be reversed on Monday, with exchange-traded funds in Brazilian stocks reversing the 10-15% rise made since the first round of voting.
The result sets the scene for a hectic period of elections ahead, including Israeli elections on Tuesday and the US midterms next week.
And before the US polls, markets have to run the gauntlet of a heavy week of AI hyperscaler earnings, with Microsoft, Alphabet and Amazon reporting alongside a third of S&P 500 firms this week at a nervous time for the whole AI story.
A bruising week last week left stocks in the red again on Friday. Soaring energy prices, which saw Brent crude clock its highest weekly close in four years, added to the tension.
But oil dialled back a bit to $115 per barrel on Monday on reports of fresh mediation efforts in the Middle East to avert new attacks on Iran after the US elections, and Wall Street futures were up slightly before the bell.
Bond markets have been worried more about a shakeout in AI stocks than energy prices for a change, but will now home in on the Federal Reserve, European Central Bank and Bank of Japan policy meetings this week. They are all expected to stand pat for now, although the Canadian and New Zealand central banks are likely to hike rates again.
Meantime, another weekend of protests in France ensued but there was some relief for French debt markets as the Moody’s credit rating firm did not cut France’s sovereign rating as expected on Friday, despite the ongoing impasse around the country’s annual budget.
Britain too is in budget mode this week, with its annual plans set to be announced on Wednesday.
CHART OF THE DAY
Brent crude recorded its highest weekly close in four years last week and was hovering around $115 per barrel first thing Monday. But it’s the price of refined products like diesel that are likely to hit businesses and households most as Americans prepare to vote in the midterm elections next week.
TODAY’S EVENTS TO WATCH
• US 2-year note auction (1 p.m. EDT)
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