Manufacturing Contraction Shows Signs Of Stabilizing
The rise in Brazil’s manufacturing PMI to 47.3 is a welcome sign, even though it still shows a contraction. It suggests the decline in the manufacturing sector is losing steam, which is the first step towards a potential recovery. For us, this isn’t a signal to go all-in, but it does justify shifting away from a purely bearish stance. We remember how the aggressive interest rate hikes by the Banco Central do Brasil throughout 2025 were necessary to curb inflation. Those policies likely contributed to this manufacturing slowdown we’ve been experiencing. However, with the Selic rate now cut to 11.25% in January, this PMI data could be the first evidence that monetary easing is starting to work its way through the economy. In the coming weeks, we should consider cautiously bullish positions on the iBovespa index futures. A strategy like buying May call spreads on the EWZ ETF makes sense, as it captures potential upside while defining our risk. This approach is prudent given that the index is still trying to recover from its 8% drop in the final quarter of 2025. This data also has implications for the Brazilian Real, which has been under pressure. A bottoming in the economy could lend support to the currency, potentially halting its slide against the dollar. Selling out-of-the-money puts on the BRL/USD pair for April could be a way to collect premium while betting that the currency won’t weaken significantly from here. We should expect implied volatility on Brazilian assets to slowly decrease if this trend of better-than-feared data continues. The market may begin to price out the worst-case recessionary scenarios.Key Watch Items For The Next Move
Keep a close eye on iron ore prices, which have stabilized near $115 per ton, as any renewed weakness there could easily overpower this domestic optimism. Create your live VT Markets account and start trading now.
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