Shock in Brazil sends stocks plunging, while neoclouds take another hit

Hello, Leonie Kidd here with today’s edition of Morning Squawk.

Two shocks – a busy morning.

The result of Brazil’s snap elections triggered an overnight liquidation of the country’s assets.

While Elon Musk entered the neocloud debate with a stark warning that these beaten-down stocks are facing “guppy-level death.”

Futures are holding on to small gains, but just barely.

Luiz Inácio Lula da Silva has won an unprecedented fourth term as president of Brazil, in a dramatic comeback after a first round that saw him trail his rival, Senator Flávio Bolsonaro.

Bolsonaro refused to acknowledge his defeat, saying he would seek the annulment of the result, Reuters reported. He also said Supreme Court Justice Cristiano Zanin’s decision to extend the vote by two hours was “unacceptable,” according to the report.

• Instant reaction: THE iShares MSCI Brazil ETF (EWZ) fell more than 20% overnight following the results, which could signal the biggest one-day decline in ETF history. November Brazilian real futures fell 10% in Asian trading.
• Stocks in free fall: U.S.-listed Brazilian stocks also fell premarket, with Petrobras down more than 20%, banking group Itaú Unibanco down almost 30% and brewer Ambev down 19%.
• Analysis: Bolsonaro was seen as a more market-friendly candidate, with expectations that he would push for fiscal austerity and deregulation. Lula will have to convince the markets that he can stabilize the debt trajectory.
• Why it matters to Trump: The US president had celebrated Bolsonaro’s lead in the first round, hoping that another right-wing leader could bring US foreign policy closer together.

Israeli voters will go to the polls on Tuesday, in the first election since the Hamas attacks of October 7, 2023.

Polls suggest the election could be a close race between Netanyahu’s support bloc and an opposition bloc with centrist former military leader Gadi Eisenkot as the main challenger for the top job.

• Analysis: The vote is seen as a referendum on outgoing Prime Minister Benjamin Netanyahu, with defense and security key campaign themes.

• Interior view: Israeli President Isaac Herzog told MSNow that President Trump’s support for Netanyahu not to influence Herzog’s role in the formation of any coalition.

Embattled neocloud stocks were dealt another blow overnight.

This time from Elon Musk on X.Com…

His comments sent shares of CoreWeave, Nebius and IREN deep into the red in premarket trading. Stocks have already fallen more than 30% each in October, as credit investors blew up their yields to distressed levels, doubting their business model of using aggressive debt levels to build data centers.

• Choose your metaphor: Roundhill’s Dave Mazza says, “What investors are doing is throwing out all the babies with the bathwater,” while Equity Armor’s Brian Stutland asks, “Can you drop a bowling ball in one part of the pool without getting waves downstream?”

Oil prices are also down in early trading Monday. The decline follows a strong rally on Friday after new Houthi attacks on Saudi Arabia fueled fears of disruption.

• Exclusive: IEA Executive Director Fatih Birol told CNBC the organization is standing “ready to act again” and supporting markets after his recent release of oil stocks, while adding that he does not expect energy markets to return to pre-war levels in 2027.

Investors can begin to gauge the reception to Apple’s new iPhone Duo after its first weekend on sale to customers.

Analysts said queues were shorter on Friday than at previous launches, while supply issues were also flagged as a concern.

• Why it’s important: Monday should bring the first useful Street reactions, third-party sales data and channel checks now that the iPhone Duo is actually in customers’ hands.
• And then? : CNBC’s MacKenzie Sigalos is on this today, amid reports of screen cracks and crashes, while others online have complained about apps not being compatible with a larger screen.

It’s a busy week for monetary policy, with rate decisions expected from the Federal Reserve, European Central Bank and Bank of Japan.

• The predictions: all are expected to maintain their interest rates this quarter. The Fed has already announced that it will remain in wait-and-see mode, especially as the midterms approach. The ECB is also expected to maintain its key rate until December. The BoJ is also expected to hold on until the end of the year, after raising rates last month.

It’s also another key week for the tech sector, with reports from Alphabet and Microsoft on Wednesday and Amazon on Thursday.

• Why it’s important: Investors will be watching for signs that Alphabet is catching up with rivals in cutting-edge AI, while some analysts are upgrading Microsoft on similar AI acceleration hopes, and Amazon is expected to show increased cloud growth at AWS.

Audi defends $4 billion Georgia factory project

DETROIT — Audi’s CEO on Sunday defended the automaker’s plan to build a new $4 billion factory in Georgia, calling it a business move aimed at boosting sales and reducing exposure to U.S. tariffs.

The plant, expected to be Audi’s first in the United States, was announced Saturday by President Donald Trump at a rally in Georgia, near where the Volkswagen-owned luxury brand plans to build the new SUV production plant.

“We have much bigger ambitions for Audi in America,” Audi CEO Gernot Dollner said during a media roundtable on Sunday. “The United States is the second largest premium market in the world, and today we are not fully exploiting this potential. We are changing that.”

— CNBC’s Caleigh Keating, Chloe Taylor, MacKenzie Sigalos, Isabel O’Brien and Michael Wayland contributed to this report.

John Melloy edited this edition.