Lula’s comeback, Chile’s hawks

Lula’s shock election victory led to dramatic market moves and he has done little since to reassure investors. Our working assumption is that he will adopt a more conservative fiscal stance in 2027 than this year. But public finance concerns mean the central bank is likely to remain on the sidelines (rather than ease) at its remaining meetings this year, including on Wednesday. Elsewhere, although Chile’s central bank struck a hawkish tone this week, soft growth will prevent a rate hike. In contrast, the strength of Mexico’s economy should lead to less dovish communications at the Banxico meeting on Thursday.