by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our outlook on the upcoming Brazilian elections this weekend. Next, we provide an update on Iran, examining the president’s plan to deploy additional troops to the region. We then briefly cover the ongoing war in Ukraine and the EU’s proposal to release strategic diesel reserves into the market. As always, we conclude with a review of recent domestic and international economic data.

Brazil Elections: South America’s largest economy is set to hold elections this weekend, setting the tone for the country’s future relationship with the United States. In a crowded field, incumbent left-wing President Luiz Inácio Lula da Silva is expected to advance past the first round against Flávio Bolsonaro, the right-wing candidate and son of former president Jair Bolsonaro. The race highlights the intensifying rivalry between the US and China, both of which are actively competing for resources across the continent.

• While both frontrunners are expected to comfortably clear the first round, the general election remains a tight contest with no clear favorite. Recent polling shows a competitive race, with Luiz Inácio Lula da Silva holding a narrow three-point edge over Senator Flávio Bolsonaro in a potential runoff. However, prediction markets lean toward Bolsonaro, giving him approximately a 60% chance of winning the presidency.
• Washington is keeping a close eye on Brazil’s high-stakes election. US President Donald Trump has publicly expressed interest in the vote, maintaining close ties with the Bolsonaro family after supporting former president Jair Bolsonaro and later criticizing his judicial prosecution. Tensions have mounted following reports of a proposed $1 million US grant intended for civil society groups opposed to the Brazilian judiciary, prompting local allegations of external interference.
• The White House’s support for Bolsonaro comes as incumbent Lula maintains a cooler stance toward closer diplomatic and economic ties with Washington, particularly regarding Brazil’s vast natural resources. While Lula has stated that Brazil is open to US investment in its world-class rare earth mines, he has rejected granting exclusive access or playing favorites. In contrast, Bolsonaro has shown a far greater willingness to align closely with Washington’s strategic and commercial interests.
• Although a decisive first-round winner is unlikely this weekend, the vote should provide key momentum indicators for a prospective late-month runoff. A victory for Bolsonaro could spark a rally in Brazilian equities as market participants anticipate greater fiscal discipline from the conservative candidate, along with expanded US investment and trade incentives.

Iran Tensions: The US is preparing to escalate tensions with Iran after negotiations stalled. According to a new report, Washington plans to deploy an aircraft carrier carrying more than 10,000 troops, a move that would give the president more options should he decide to ramp up attacks on Iran. This follows the US decision to expel Iranian delegates over a lack of progress in talks. A broadening conflict would further add to market uncertainty.

• The decision to send more troops follows a threat by President Trump that he is prepared to resume strikes after the midterms in November. The ships have already left their ports and are expected to carry sailors as well as marines in what will be the largest deployment the US has launched since the conflict began in February. The ships appear to be preparing for a possible amphibious operation, which suggests there is a possibility of troops on the ground if the president gives the order.
• In the days leading up to the midterms, there are growing concerns that Iran may be broadening its attacks. On Wednesday, the UK prime minister stated that a security incident at a military base in September may have been linked to Iran. At the same time, Trump has also asserted that a recent attack by a copilot on a flight from Dubai to Israel may also have Iranian ties. While none of these links have been proven, if true, they could add another layer to the conflict.
• The US deployment to the Strait of Hormuz could loosen Iran’s grip on the waterway. Although trade flows through the strait have remained subdued since the conflict began, the US has managed to escort a limited number of ships safely through. A larger US troop presence in the region should therefore enhance stability, helping to secure the strait, allow more ships to transit, and ultimately ease pressure on energy markets.

Ukraine War: Russia appears to be escalating its war effort in a bid to shift momentum on the battlefield. Ukrainian President Volodymyr Zelenskyy accused President Vladimir Putin of instructing Russian military leaders to abandon the rules of war. The warning comes amid a grinding stalemate, with both nations carrying out reciprocal strikes on critical infrastructure. Zelenskyy’s comments suggest that hostilities could intensify significantly in the coming weeks.

Diesel Prices: The EU is weighing a release of its strategic reserves of diesel to help bring down global prices under pressure from Washington, which has threatened to ban exports to Europe if it does not act. The push comes as tightening supply has driven diesel prices sharply higher. A release would likely ease inflation pressures and reduce, though not eliminate, the risk of shortages should the conflict drag on.

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