The shares placed the bet. The currency did not.

A first round already in the price

**The vote was bought on Friday.** Brazil went to the polls on Sunday with the final surveys showing Lula slightly ahead of Flávio Bolsonaro. With most ballots counted, the senator led by about three points, short of the majority needed to win outright, and the two meet again on 25 October. Analysts quoted by Reuters read part of his vote as a protest against Lula that might not repeat in a runoff.

Local investors did not wait for the count. On Friday the Bovespa rose 2.6% and the Brazil ETF in New York 2.8%, against 0.7% for the S&P 500, while the real finished almost unchanged. A broad risk day would have lifted the currency with the shares; this one did not. It was a bet on the vote, held in equities, and on Sunday night it paid.

The proprietary layer says the currency was never part of that bet. Speculative net length in real futures fell from 72.8 thousand contracts in early September to 54.2 thousand, and was 60.5 thousand in the week to 29 September. The analysts covering Brazil's six largest US-listed companies changed one buy rating in a month. And underneath the currency, export receipts are running hot: the engine counted 49 grain vessel movements at Santos on Sunday against a 30-day average of 30.

That divides the runoff into two trades. The stock market has taken the first: a right-leaning first round. The second — what a trailing incumbent and a leading challenger promise over three weeks — is fiscal, and Brazil's gross debt stood at 82.9% of output in August. Spending promises reach the real and long local rates before they reach earnings. That is where this week's information will be.

Three calls are marked today. OPEC left output unchanged, which leaves the crude half of the Gulf shock to security alone, as we wrote on 4 October. Gulf tanker departures fell below their monthly average on Sunday, day one of our three-day test. And Friday's weak payrolls did not pull long yields down, the test we set on 2 October.

*Methodology.* Prices are settlements and closes for Friday 2 October; no regulated market has traded since, and Brazilian markets open on Monday afternoon European time. Vote shares are as reported with most ballots counted and may shift slightly in the final tally. Speculative positioning in the real is the weekly CFTC figure for Chicago futures. Tanker and grain-vessel counts are the engine's daily series against their own 30-day averages; days with no coverage are excluded rather than read as zero.

Risk radar

What the desk is hedging.

severe impactmedium prob.

Gulf strikes turn into a sustained fall in tanker departures

After Saturday's claimed Houthi strike on an Aramco site, Iran said the strait will not reopen until seven conditions are met and the WSJ reports attacks on ships resuming. The engine's Gulf departures fell to 218 on Sunday against a 30-day average of 262. The scenario is several days of lower departures that turn a claimed threat into lost supply. Carried 4 October at medium probability, severe impact and rising; unchanged today on the first day below average.

high impactmedium prob.

Long Treasury yields keep rising on weak data

The ten-year rose 4 basis points on Friday to 5.277% on a payrolls report far below consensus, a response that runs opposite to the usual one. The scenario is a move through recent highs driven by supply and inflation worries rather than growth, which leaves bonds unable to cushion falls in shares. Carried 4 October at medium probability and high impact, stable; trend raised to rising because the payrolls test failed.

high impactmedium prob.

A French bond selloff spreads across the euro area

Bloomberg reports contagion worries returning to Europe's bond market as French yields rise; the euro fell 1.2% on the week while yields rose, the pattern of a credit premium rather than a growth scare. The scenario is spreads widening beyond France and forcing the ECB to choose between inflation and its bond market. Newly re-entered on the radar; trend set by the week's direction of travel in the euro and French yields.

high impactmedium prob.

A hiring stall turns into falling consumer spending

September payrolls rose 29 thousand and hourly earnings 0.1%; large employers are pre-announcing cuts without detail, and record diesel prices are squeezing truckers. The scenario is a fourth-quarter fall in real spending while energy keeps inflation high. Carried 4 October at medium probability and high impact, stable; unchanged pending ISM services today and jobless claims on Thursday.

medium impactlow prob.

Brazil's runoff campaign turns into a spending contest that hits the real

The first-round count was clean and quick, so the contested-result scenario we carried on 4 October did not occur. What remains is a three-week runoff polled as even, with gross debt at 82.9% of output. The scenario is promises on fuel, wages and transfers that lift long local rates and weaken the real. Carried 4 October at medium probability and medium impact, stable; lowered to low and falling because the count was not disputed and speculative real positions were already lighter.

On watch this week

The real against 5.21 per dollar this week, set beside the stock index: which of the two moves first.
Pledges from both runoff candidates on spending, fuel prices and the minimum wage.
US ISM services today, consensus 55.7: its prices component after September's fuel squeeze.
Gulf tanker departures on Monday and Tuesday: Sunday was the first day below the monthly average.

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