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Brazil election: Runoff between Dilma Rousseff and Aecio Neves in three weeks - ING

FXStreet (Łódź) - Gustavo Rangel from ING comments on the outcome of the first round of Brazilian general elections revealing president Dilma Rousseff's narrow lead over center-right former president of the Brazilian Social Democracy Party Aecio Neves, whom she will have to face in a runoff in three week's time.

Key quotes

"The main surprise of the result was Neves’s large 33.6% share of the valid votes. This compares with polls predicting a result closer to 26%. Another surprise was Rousseff’s smaller take, 41.6%, when compared to polls predicting a result closer to 44% of the valid votes. This compares with Marina Silva’s 21.3% result, also lower than the 24% expected."

"The main question now though is how Marina Silva’s votes will be split between the two candidates. In 2010, her share was split roughly 50/50 between the two candidates, which allowed Rousseff to end the race with a 12-point advantage over Serra. At that time, Silva refrained from lending her support to either Serra or Rousseff. This time around, it seems that Silva wants to play a bigger role in the second round, and she already signaled that she may formally announce her support to Neves."

"Overall, there’s enough evidence from yesterday's result, namely Rousseff's very narrow lead over Neves, to justify pricing out a scenario of a high-likelihood re-election by the President. As a result, even though we were wrong in our assessment of Neves’s chance at pulling ahead, we still believe in our call that polls should reflect a scenario more favorable for the opposition during the second round, when compared to the dynamics seen in the past couple of weeks."

"Neves should benefit from a greater allocated propaganda time in the second round, which will now equal Rousseff’s, and the fact that he has proven to be the most solid candidate in debates should help. Still, as last night’s result also showed, this remains a highly unpredictable race."

"In the meantime, after the expected correction today, expect market focus to shift once again to following the polls, even if they proved to be quite inaccurate in capturing the final result."

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