Politics is dominating the agenda for investors around the world this week with elections in multiple countries.
Brazil is in the process of finalising the result of what looks like a surprise win for incumbent left-wing president Lula over the right-wing candidate Flavio Bolsonaro.
Bolsonaro is disputing the result though, claiming irregularities mean the election should be annulled.
Israel heads to the polls tomorrow in an election with major geopolitical implications, given the ongoing turmoil in the Middle East. Polls indicate centrist candidate Gadi Eisenkot will beat incumbent ring-wing prime minister Benjamin Netanyahu.
America too is closing in on its own election, with this being the last full week of campaigning before the mid-terms next Tuesday, 3 November.
Oil is the main barometer of the status of the crisis in the Middle East, and on Monday Brent crude is at $115 per barrel and WTI at $101, indicating significant concern over further escalation remains.
Adding to the complexity facing investors, it is still unclear whether the pullback in AI related stocks has concluded and will be followed by a quick recovery, or if a further correction is coming.
The Anthropic IPO is due to take place next month, but it remains uncertain if the company will go ahead, given the volatile market conditions and wider concern over funding for AI firms, particularly the neoclouds.
In the UK, Budget speculation will hit fever pitch over the next two days ahead of Chancellor John Healey’s speech on Wednesday. The tea leaves are pointing to a relatively muted event, with the government keen not to ‘rock the boat’ with big tax or spending changes, but surprises can never be ruled out.
See also: Saranac’s Urwin: AI has come for the bond market, but not how you think
AJ Bell investment director Russ Mould, said: “The FTSE 100 made a solid start to Budget week as oil prices eased back and despite weak trading across Asia.”
“The key yardsticks for how markets are feeling about the UK ahead of Chancellor John Healey standing at the despatch box – the pound and gilts – are holding steady two days out.
“The political situation is more volatile in Brazil, with the surprise victory of incumbent Luiz Inacio Lula da Silva in a knife-edge presidential election over his opponent Flavio Bolsonaro, perceived as more market-friendly, putting futures in Brazilian currency, bond and equity markets under pressure.
“Brent crude oil prices pulled back a touch from their highs above $118 late last week, levels last seen in the early stages of the Iran conflict,” he continued.
“The continuing recovery in exports from the Middle East is helping to douse some of the concern about the potential for renewed US-Israeli strikes on Iran.”
Viktor Szabó, investment director, emerging market debt, Aberdeen Investments, added: “Luiz Inácio Lula da Silva has completed one of the most remarkable comebacks in Brazil’s democratic history.
“Three weeks after finishing second in the first round, he won Sunday’s run-off with 51.8% of valid votes against 48.2% for Flávio Bolsonaro. He is the first candidate since the return of democracy to win the presidency after trailing in the first round, and the first Brazilian to be elected president four times. His new term begins in January”.
“Markets will take a very different view. Brazilian markets had not opened when this article was written, but a strong negative reaction is expected.
“Investors had leaned heavily towards a change of government: the Ibovespa rose more than 8% in early trading after the first round and long-term interest rates fell sharply on hopes of a shift in fiscal policy. Much of that move now looks set to reverse, and the burden of proof sits squarely with the re-elected president.”
