President Lula will address the nation on Sunday (8) in an effort to restore market confidence shaken by his reelection. According to reporting by Estadão/Broadcast, the speech will reaffirm the administration's commitment to fiscal targets—though a package of concrete spending cuts is deferred to the second half of November, when the president returns from international engagements.
What Will Lula Announce in Sunday's Address?
The message is political rather than technical. Lula is expected to emphasize fiscal responsibility throughout his fourth term, state that he remains committed to fiscal targets, and signal that he will not abandon campaign promises. The president is also likely to push for political reconciliation following a polarized election against Flávio Bolsonaro (PL). The address is not expected to include a package with specific figures at this stage—a point confirmed by Finance Minister Dario Durigan, who indicated that the measures will be discussed with Lula upon his return from COP31 in Turkey.
Minister Durigan and Planning Secretary Bruno Moretti already have the authority to finalize the measures. Durigan signaled to the Central Bank that the fourth term will feature technical rigor—and Sunday's address serves as the public-facing version of that message, aimed at retail investors and international markets.
One detail highlights the scale of the communication challenge: during the campaign, Lula referred to the primary surplus as "nonsense." The decision to use a nationwide broadcast specifically to reiterate fiscal commitment signals that the market took the remark seriously—and that the government has received the message.
How the Week Impacted Your Portfolio
The October 25 election results triggered a market selloff that has yet to abate. The Ibovespa has notched six consecutive declines since the election, a movement InfoMoney describes as a reflection of fiscal uncertainty combined with initial ambiguity regarding the economic team for the fourth term. We previously explained why the U.S. dollar surged and the stock market triggered a circuit breaker immediately following the reelection—and market sentiment has not improved significantly since then.
Approaching R$ 5.50, according to Agência Brasil, amid heightened fiscal caution
Sixth consecutive decline since the election, with the index having stood above 205,000 points prior to the vote
The central bank's Focus survey revised its year-end 2026 projection from 13.25% to 13.50% in the first week of November
The shift in the Focus survey reflects the market's reading: if the fiscal outlook deteriorates, the Central Bank has less room to cut interest rates, and investors price that risk into the long end of the yield curve. Long-term interest rates have risen, putting pressure on both fixed-rate government bonds and brick-and-mortar real estate funds (FIIs). The Ibovespa has fallen nearly 19% from its pre-election level—dropping from over 205,000 to 166,000 points—representing a substantial loss in portfolio value for equity investors.
The Scale of the Fiscal Challenge Facing the Address
Sunday's commitment is not mere rhetoric; it is a response to challenging math. According to the Central Bank, Brazil's gross general government debt reached 82.9% of GDP in August 2026, equivalent to R$ 11.1 trillion. The Independent Fiscal Institution (IFI) estimates that stabilizing this trajectory from a baseline primary deficit of 1% of GDP in 2027 could require adjustments of up to R$ 450 billion over the coming years—a challenge that no single Sunday broadcast can resolve on its own.
This problem is compounded by a structural factor: 46.4% of public debt is tied to the Selic rate. This creates a vicious cycle—fiscal fragility drives up interest rate expectations, high rates increase the cost of rolling over the debt, and a larger debt burden demands further fiscal adjustment. In the first nine months of 2026, according to the Central Bank, debt service costs added 7.2 percentage points to the debt-to-GDP ratio, while nominal economic growth worked in the opposite direction, reducing it by 3.9 points—resulting in a net increase of 3.3 points in just nine months.
Campaign promises add further pressure. New initiatives pledged during the race—such as expanding the Pé-de-Meia education savings program to higher education, building more than 100 maximum-security federal prisons, and adjusting the Bolsa Família welfare program and the minimum wage—require adjustments of at least R$ 39.8 billion in the 2027 federal budget, according to the Ministries of Finance and Planning. We have previously outlined potential solutions for public debt—though most encounter a lack of political support for unpopular measures, leaving Congress with a central role in the equation.
What This Means for Fixed Income, FIIs, and Equities
The outcome depends on which scenario materializes in the coming weeks. With the Selic rate at 13.75%, post-fixed bonds tied to the CDI rate currently deliver a real return of approximately 8% per year (discounting projected inflation of around 5.5% in the Focus survey)—the most attractive level in years for risk-averse investors. This appeal of fixed income weighs heavily on FIIs in the short term: while the CDI yields over 1% per month with near-zero risk, investors demand a higher risk premium to hold property funds, driving unit prices lower.
Paper FIIs (which hold inflation- or interest-rate-linked credit receivables) benefit from the high-rate environment and remain relatively protected. Brick-and-mortar funds—particularly those that are heavily leveraged or hold long-duration portfolios—are more vulnerable when the long end of the yield curve rises. For equities, the impact is twofold: corporate capital costs rise alongside long-term interest rates, and foreign investor sentiment deteriorates amid fiscal uncertainty. Durigan has already dismissed the interest rate cap proposed by Lara Resende, removing one source of weekly uncertainty, though the fiscal package itself has yet to be released.
Spending cuts exceeding R$ 39.8 billion approved by Congress pave the way for Copom to resume cutting the Selic rate—boosting brick-and-mortar FIIs and fixed-rate bonds while the U.S. dollar softens
The long yield curve remains elevated, the Selic rate rises further in 2027, the Ibovespa lacks catalysts, and FIIs continue to be passed over in favor of post-fixed income
Key Developments to Monitor
Sunday's address itself—if Lula announces concrete measures beyond a broad commitment (such as specific spending cuts, timelines, or projects), expect risk premiums to compress as early as Monday. If the speech remains limited to calls for reconciliation and responsibility, the market is likely to open the week flat while awaiting the package.
The fiscal package in the second half of November—this represents the true inflection point. The market requires identified spending cuts; the minimum baseline for 2027 is an R$ 39.8 billion adjustment, according to the ministries themselves. Anything short of this risks pushing the yield curve higher and sustaining pressure on brick-and-mortar FIIs.
Copom's next policy signal—following the Focus survey revision (raising the end-2026 Selic projection from 13.25% to 13.50%), the Central Bank may signal a pause or reversal of its rate-cutting cycle. If the fiscal package proves credible, Copom can maintain its downward trajectory for the Selic; if not, interest rates could rise again in 2027, altering the allocation framework across fixed income, FIIs, and equities.
