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Why Brazil’s Services PMI Contracted in May

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Brazil’s Services PMI in May

According to a report by Markit Economics, the final Brazil services PMI (purchasing managers’ index) dropped in May as compared to April. It stood at 49.5 in May as compared to 50.0 in April. It was the lowest figure since January 2018 and the first contraction in services activity after four months of expansion.

Brazil’s (EWZ) services PMI in May was mainly affected by the following factors:

  • Production volume and output weakened in May as compared to April.
  • New business orders and export orders all rose at a softer rate during the month. Falling domestic demand mainly hampered the economic activity in that month.
  • The employment in the service sector also declined in that month.

Brazil’s overall business sentiment in the service sector tumbled in May 2018. The falling client demand and challenging market environment are the primary factors weighing on the economic activity of Brazil. The steeper rise in inflation in the economy mainly affected its equity market in May 2018.

Market impact in May

In the previous part of this series, we saw that major ETFs such as the iShares MSCI Brazil Capped ETF (EWZ) and the Direxion Daily MSCI Brazil Bull 3X ETF (BRZU), which track the performance of Brazil’s equity market, dropped drastically in May. The rising uncertainty about Brazil’s political environment mainly affected the performances of these ETFs in that month. The First Trust Brazil AlphaDEX ETF (FBZ) fell 14.6% in the same month.

In the next part of this series, we’ll analyze the performance of China’s manufacturing PMI in May.

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