New volatility in Brazilian markets after Bolsonaro supporters storm government buildings

Brazilian assets could be subject to new volatility after supporters of former President Jair Bolsonaro stormed key government buildings in a repeat of January 6, 2021, U.S. uprising.

Sunday’s invasion, which resulted in a crackdown on law enforcement and damage to the Supreme Court building and other locations, stunned observers, including those in the financial industry.

Ricardo Lacerda, founder, and CEO of Brazilian investment bank BR Partners said markets will be volatile in the short term, especially on Monday.

The Brazilian real and its Bovespa index, which led other emerging markets in Latin America for most of 2022, are already feeling the negative impact since the first days after the inauguration of President Luiz Inacio Lula da Silva due to fears of an increase in state expenses.

Learn how to trade stocks and popular assets with Top Forex brokers in Brazil

Meanwhile, Carlos Eduardo Furlanetti, a professor at the FIA business school, expects the president’s support of institutions, including Congress and the Supreme Court, could even help Lula’s government politically in the medium term.

Other analysts expect an unfavorable initial reaction in the markets in the form of rising interest rates and falling currencies and stock exchanges. But markets could bounce back by the end of the week, given the strong institutional backlash against the rioters.

The Brazilian rebels were aided by law enforcement in Brasilia, adding to the perception of political risk in the country. But if the institutions demonstrate unity against the invaders from Brazil, the situation will change.

While a large part of the Brazilian banking industry supported Bolsonaro, given his free-market reputation compared to Lula’s Workers’ Party, the main industry association denounced Sunday’s violence.