Why Brazil’s Services Activity Was in the Contraction Zone in August

Brazil’s (EWZ) services PMI was in the contraction zone in August 2017. A level above 50 is known as the expansion zone, while a level below 50 is known as the contraction zone. The services PMI stood at 49 in August 2017 as compared to 48.8 in July 2017, according to the data provided by the HIS Markit report. The PMI figure didn’t beat the preliminary market estimation of 49.2.

The contraction in Brazil’s services PMI in August 2017 was mainly due to the following factors:

• Production volume and output fell in August 2017. However, business inflows showed a slight improvement.
• Both new orders and export orders fell in that month. The contraction in various order books was marginal in August as compared to previous months.
• The employment in the service sector also fell in that month.

In the above part, we saw that Brazil’s (BRZU) (FBZ) manufacturing activity showed some improvements in August 2017. The expectation of huge reforms in the economy is mainly driving investors’ sentiment. However, the service sector is still facing some issues. The weaker domestic demand is mainly hampering the performance of this sector.

The Direxion Daily MSCI Brazil Bull 3X ETF (BRZU), which tracks the performance of the MSCI Brazil 25/50 Index, rose nearly 17% in August 2017. In the last one-year period, the ETF returned nearly 57%.

In the next part of this series, we’ll analyze the performance of Mexico’s manufacturing PMI in August 2017.