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Why Brazil’s Lower Manufacturing Activity May Concern Investors

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Brazil’s manufacturing activity in January 2018

According to Markit Economics, Brazil’s manufacturing PMI (purchasing managers’ index) has been falling gradually since November 2017. It fell to 51.2 in January 2018 from 52.4 in December 2017, missing the market estimate of 52. However, it marked the sixth consecutive month of improved operating conditions.

Brazil’s manufacturing PMI weakness in January was mostly due to the following factors:

  • production output and volumes rose at a weaker rate, and factory output weakened
  • new business and export orders fell
  • job growth in the manufacturing sector fell
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ETF performance

The iShares MSCI Brazil Capped ETF (EWZ), which tracks Brazil’s (FBZ) economy, rose 15.7% in January 2018. The Direxion Daily MSCI Brazil Bull 3X ETF (BRZU) rose by a tremendous 49.7%.

Major indexes’ stronger performance in January was mainly due to improved global growth. Major indexes around the world rose strongly, and positive sentiment drove investor sentiment.

However, Brazil’s manufacturing PMI fell due to softer domestic demand and export orders in January. If the manufacturing PMI continues to fall, it could be a major concern for the economy. In the next part of this series, we’ll analyze Brazil’s service PMI in January 2018.

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