How will the Iowa caucus impact the Brazilian market?

Every time financial analysts attempt to forecast trends in Brazil, they have one eye looking abroad. As an emerging economy without investment-grade status, Brazil’s future is largely influenced by foreign factors. In 2020, U.S.-Iran tensions and the coronavirus outbreak have already shaken markets and weighed down Brazil’s currency. And now, on the first Monday in February, investors with positions in Brazil should brace themselves for more volatility, as the Iowa caucus kicks off the process to select the U.S. Democratic Party’s candidate to face Donald Trump in the upcoming presidential election.

On the U.S. stock market, the effects of the Democratic Party’s primaries are already being felt. Senator Bernie Sanders—who has promised a single-payer national health insurance system—has gained momentum. FiveThirtyEight’s poll aggregator has Mr. Sanders leading the way. Since Monday, shares of private health insurance operators have plummeted, including Cigna (-2.4 percent), UnitedHealth (-2.31%), and Anthem (-9.12%).

It is only a matter of time until these effects are felt in Brazil, where over 40 percent of the São Paulo stock exchange’s trading volume is operated by foreign investors. 

The U.S. election chessboard

After likely dodging an impeachment process, U.S. President Donald Trump will fight for re-election while banging the drum of the country’s full employment and 2.3-percent GDP growth in 2019. Still, some risks are looming, with the U.S. public deficit set to top USD 1 trillion in the fiscal year of 2020, which would be the biggest such deficit since the Great Depression—the biggest not caused...