Brazil election: Bolsonaro leads as traders doubt polls

Flávio Bolsonaro, the son of the convicted ex-president Jair Bolsonaro, is far ahead of the current Brazilian president Luiz Inácio Lula da Silva in Brazil’s presidential election market, despite polls suggesting a much closer runoff. This significant gap between market pricing and voter surveys raises a question ahead of the October 25 vote, whether traders are anticipating a Bolsonaro victory that the polls have yet to capture – or it's the other way around.

At the time of writing on Thursday (11:40 UTC), Bolsonaro has an 81% chance of winning Brazil’s presidential election, according to the trader sentiment. This is up 29% over a month and down 5% over the past week.

Notably, this market repriced sharply after the first round on October 4. Bolsonaro won 47.03% of valid votes against Lula’s 45.16%. It was a tight lead, but a lead nonetheless.

Overall, there was a major shift in expectations that Lula could get ahead, while Bolsonaro gained momentum heading into the runoff. Still, it’s important to note that a first-round lead doesn’t mean a guaranteed win in the second round in under two weeks.

Polls show a much tighter contest

Recent surveys show that Bolsonaro does indeed have an edge – but, interestingly, not one that comes even close to the market’s 84% probability.

A PoderData/AYA poll reported by Bloomberg on October 13 put Bolsonaro at 51% of valid votes against Lula’s 49%. Moreover, the gap had narrowed from six percentage points in the previous survey, with Bolsonaro losing two points and Lula gaining two.

According to a BTG Pactual/Nexus poll, Bolsonaro’s ahead by 52% to 48%. The October 14 Quaest poll has Bolsonaro at 46% against Lula’s 44%, with a two-point margin of error.

The PoderData and Quaest results were within their margins of error, suggesting that the candidates are statistically tied.

And yet, the traders think otherwise. This could imply that they may not trust the polls at this time – at least not on their own. Polls measure voter intentions only, but traders may also be factoring in Bolsonaro’s first-round performance, the consolidation of conservative support, the difficulty Lula faces in attracting voters from eliminated candidates, and other factors.

Meanwhile, on Wednesday, Brazil’s Congress has approved a constitutional amendment, championed by Lula, to shorten the working week to a maximum of 40 hours. This may bolster Lula’s chances.

With the runoff fast approaching, the next questions are whether Lula can continue closing the gap and whether market odds respond to it.