A Democratic victory in both chambers of the US Congress could support emerging markets by easing pressure on US interest rates and weakening the dollar. But analysts say the impact on Brazilian assets will remain limited unless concerns about Brazil’s public finances also diminish.

Much of the election result had already been priced in, according to Leonardo Mendes, an economist and financial consultant at Manchester Investimentos. He said the scale of the Democratic win exceeded expectations, while a decisive result without major disputes offered a positive signal for institutional stability and reduced political risk.

For Brazilian markets, however, domestic conditions have been the stronger influence. Mendes said worsening fiscal expectations after President Luiz Inácio Lula da Silva’s reelection have weighed more heavily on the dollar, stocks and interest rates than developments abroad. He identified the Brazilian yield curve, particularly its sensitivity to US Treasury yields, as a key channel through which the election could affect local markets.

Following the result, US Treasury yields fell, alongside Brazilian interest-rate futures. At 5:27 p.m., the 10-year Treasury yield was down 0.07 percentage points at 4.885%, while the 30-year yield fell 0.04 points to 5.277%. Brazilian contracts due in January 2028 dropped 0.22 points to 14.405%, and those due in January 2035 fell 0.43 points to 15.050%.

Mendes also linked elevated US interest rates in recent months to higher oil prices, which he said had risen from a range of $60 to $70 a barrel to more than $100 amid international conflicts, particularly in the Middle East. That increase added to inflation and weakened expectations of Federal Reserve rate cuts. A less interventionist US foreign policy could help ease conflicts and, in turn, reduce oil prices and inflation, he said, potentially bringing future US rates down.

Lower US rates and a weaker dollar could encourage investors to seek opportunities in emerging markets. The resulting interest-rate differential is relevant to carry trades, in which investors borrow in lower-rate countries and invest in markets offering higher returns. But high US rates also make it harder for Brazil’s central bank to cut the Selic rate without adding pressure to the exchange rate and risk premiums, Mendes said.

Tadeu Arantes, head of asset allocation at Ghia Multi Family Office, said US elections tend to produce less dramatic changes in economic policy than elections in emerging markets, given the greater institutional continuity in the United States. A Democratic majority in Congress could constrain President Donald Trump’s ability to advance proposals requiring legislative approval, including increased public spending. That prospect of fiscal restraint helped explain the declines in US yields and the dollar on Wednesday, he said.

André Matos, CEO of MA7 Capital, said the result was marginally positive for Brazil but did not change its domestic outlook. A weaker dollar could support the real, particularly with Brazil’s high Selic rate attracting foreign capital. However, he warned that unresolved fiscal concerns could keep the real from gaining as much as other emerging-market currencies.

The effects could vary across the Brazilian stock market. Analysts said lower US rates and a weaker dollar could benefit domestic-focused sectors such as banks, retail and construction, which are sensitive to borrowing costs. Exporters could face a disadvantage when converting dollar revenues into reais, while lower oil prices could weigh on oil companies. Mendes also pointed to small-cap stocks as sensitive to interest rates, while noting their exposure to Brazil’s fiscal outlook.

Matos said it was too early to change portfolios in response to a single day of market moves. He recommended maintaining diversification, including fixed-income investments and assets abroad as protection against volatility in the real. Marcelo Boragini, an equity specialist at Davos Investimentos, likewise cautioned that the dollar’s fall should not yet be treated as a lasting trend. Its decline could persist if US rates fall steadily and inflationary pressure eases, but resilient inflation, strong economic data or renewed geopolitical tensions could support the dollar and reverse the move.

Sources: Folha Mercado.