Insights 
VT 
In July, Brazil’s S&P Global Manufacturing PMI decreased slightly from 48.3 to 48.2. The index measures the performance of the manufacturing sector, with a reading below 50 signalling contraction.
This minor decline indicates ongoing challenges within the manufacturing industry. It reflects a continuation of contraction as it remains below the neutral 50 mark.
Investment Considerations
The information is provided for informational purposes and should not be construed as investment advice. Conducting thorough research is essential before making any investment decisions related to this data.
The July 2025 manufacturing PMI data for Brazil, showing a slip to 48.2, suggests a continued slowdown in the industrial sector. This persistent contraction points to potential weakness in corporate earnings for companies listed on the Bovespa index. Therefore, we are considering defensive derivative positions.
We are looking at buying put options on the iShares MSCI Brazil ETF (EWZ) to hedge against a potential downturn in the coming weeks. Looking back, we saw a similar pattern in late 2024 when weak industrial output preceded a 4% dip in the Bovespa over the following month. This reinforces our view that the market may not have fully priced in this economic softness.
Currency and Volatility Impact
A contracting manufacturing sector often puts downward pressure on the local currency. Consequently, we are evaluating long positions in USD/BRL futures, anticipating a depreciation of the Brazilian Real. The exchange rate has already shifted from 5.30 to 5.45 BRL per USD in July 2025, and this PMI data could fuel a move towards the 5.60 level seen earlier in the year.
The ongoing economic uncertainty is also likely to increase market volatility. We have already noted a 12% rise in the implied volatility for September 2025 options on the EWZ during the last week of July. This suggests other market participants are also bracing for larger price swings in response to incoming economic data.
