May 2, 2014, 12:17 P.M

In April, manufacturing in Brazil contracted from a year ago. Headline manufacturing PMI fell to 49.3, from 50.6 in March. A reading below 50 signals contraction.

But the macroeconomic news is mixed when we look at the breakdown. Sure, output and new orders components fell below 50, “suggesting that weak manufacturing activity could drag on for longer in Brazil”, noted Capital Economics analyst David Rees. But indices related to inflation were more encouraging: Both the input and output price components fell sharply.

The cooling inflation coupled with weak manufacturing means the central bank may be near the end of the monetary tightening, commented Bill Adams, economist for PNC Financial Services Group:

What is new in this report is that Brazilian manufacturers are reporting cooling inflation, a year after the Brazilian Central Bank launched the current rate hike cycle in April 2013. If these reports are borne out by Brazil’s CPI inflation report next Friday, this could be the final bit of evidence that the Central Bank of Brazil needs to put its benchmark Selic interest rate on hold at the May 28 monetary policy decision.

End of monetary tightening is good news for equity markets. The Bovespa Index advanced 1.6% today. Perhaps investors were expecting the central bank to put the interest rate hike on hold this month too?

Bloomberg has another explanation. Brazil may see another set of election poll results this weekend showing President Dilma Rousseff‘s approval rating is dipping:

“There are rumors about the Sensus poll, which could show Rousseff losing her advantage over other candidates, and that’s what seems to be driving equities higher today,” Fausto Gouveia, who helps manage 500 million reais at Legan Administracao de Recursos in Sao Paulo, said by phone.

Earlier this week, the Brazilian equity market already rallied when a new opinion poll came out showing only 37% of the participants intended to vote for President Rousseff in the October election, versus 43.7% in February.

The iShares MSCI Brazil Capped ETF (EWZ) gained 2.4%. Petrobras (PBR) advanced 4.9%. Eletrobras (EBR) was up 2.1%. Banco Bradesco (BBD) rallied 3.6%. Itau Unibanco (ITUB) gained 3.2%.