Lula's campaign and health raise electoral risk premium

The president's public exposure in campaign events, combined with medical issues, intensifies the debate on institutional stability and risk premium in the Brazilian financial market. This episode adds to a scenario of strong volatility, reflected in the commercial exchange rate of the dollar at R$ 5.2236, showing a 2.12% increase over the 7-day variation compared to the previously recorded R$ 5.115. Local investors need to calibrate their expectations in an environment where fiscal policy and presidential succession take center stage in asset pricing. Recent exchange rate dynamics reveal the nervousness of economic agents, with the dollar accumulating a 0.73% rise over a 30-day horizon, compared to R$ 5.186 observed in the middle of last month. Meanwhile, the 12-month accumulated IPCA stands at 4.44%, remaining within the trajectory monitored by the Central Bank, although exhibiting short-term fluctuations that affect corporate planning. The Selic rate remains stationary at 14.00% per year, unchanged over the 7- and 30-day intervals, forming a wall of high interest rates that contrasts with the instability generated by political news. This context of public events and presidential health consolidates the sixth consecutive negative news item in our Economic Policy section this week, highlighting how institutional friction and the electoral kickoff in São Paulo pressure local asset prices. From the perspective of structural macroeconomics, credit and liquidity cycles suffer abrupt interruptions when the 2026 electoral political risk raises the perception of uncertainty, forcing institutional investors to demand higher premiums to allocate capital for longer terms in the Brazilian market. The main cause of this volatility lies in the sensitivity of the exchange and stock markets to any sign of weakening governance or deviations in the fiscal trajectory. With the dollar at R$ 5.22, imported inflation worries the Central Bank again, even with the benchmark interest rate at contractionary levels of 14.00%. With each public appearance of the Chief Executive mixing medical and electoral agendas, the institutional risk thermometer fluctuates, immediately reflecting on future interest rate curves and exchange contracts traded on B3. For the 30-day horizon, heightened exchange rate volatility is projected, with the dollar testing new resistances if political news maintains a tone of confrontation or succession uncertainty. Within 90 days, the trend points to the consolidation of high risk premiums in domestic assets, regardless of the temporary stabilization of the IPCA at 4.44%. Over 180 days, market focus will definitively migrate to the economic guidelines of the main candidates, testing the real economy's resilience against the 14.00% p.a. interest rates. Given this scenario of uncertainty, retail investors should adopt the prudence of value investing and margin of safety, avoiding concentrated allocations in high-beta assets without proper price discounts. It is recommended to diversify the portfolio with exposure to dollarized or inflation-protected assets, maintaining an adequate liquidity reserve to exploit potential price distortions generated by electoral panic. Heads of households and small savers should shield their budgets against the rising cost of credit, prioritizing the settlement of expensive debts before seeking new ventures.