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  • Writer's pictureThe San Juan Daily Star

Options players ready for market swings after US inflation data

Traders in the U.S. equity options market have grown skittish ahead of Tuesday’s release of inflation data that could sway the Federal Reserve’s monetary policy trajectory.

Options on the S&P 500-tracking SPDR S&P 500 Trust ETF were primed for a 1% swing in the fund’s shares in either direction by the end of trading on Tuesday. That’s larger than the 0.7% move traders had been pricing for stocks ahead of the January inflation report, according to a Cantor Fitzgerald analysis.

Stronger-than-expected consumer price and employment data have whittled away at investors’ expectations for how much the Fed will cut interest rates this year. More evidence of sticky inflation could push investors to further pare their bets on Fed easing, potentially weighing on a rally that has seen the S&P 500 rise 7% this year.

U.S. consumer prices rose more than expected in January, amid a surge in the cost of rental housing, prompting a 1.4% drop for the benchmark stock index on Feb. 13, when the data was released.

After last month’s stronger-than-expected report, “there is certainly more trepidation regarding tomorrow’s data and this will add to the nervousness of the options market today,” said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald.

Investors are now pricing in 94 basis points of rate cuts this year, compared to around 150 basis points they had priced in early January, according to futures tied to the fed funds. So far, however, a resilient economy, better-than-expected earnings and confidence that the Fed will nevertheless cut rates several times before the year is up have supported stocks.

According to a Reuters survey of economists, the CPI likely increased 0.4% in February, with the annual increase in prices at 3.1%. The core CPI is also forecast advancing 0.3%, with the year-on-year increase slowing to 3.7% from 3.9% in January.

The S&P 500 index was down 0.16% Monday afternoon and the Cboe Volatility Index - an options-based gauge of investors’ expectation for near-term stock market gyrations perked up 0.46 point to 15.20, a near three-week high.

Haiti is in the throes of an uprising not seen in decades. As politicians around the region scramble to hash out a diplomatic solution to a political crisis that has the prime minister, Ariel Henry, stranded in Puerto Rico and gangs attacking police stations, a humanitarian disaster is quickly escalating. The food supply is threatened, and access to water and health care has been severely curtailed.

André Michel, an adviser to the prime minister, said Henry has refused to resign, and has demanded that the international community take all necessary measures to ensure his return to Haiti.

The United States and Caribbean leaders have been trying to convince Henry that to continue in power is “untenable.” An international security mission led by Kenya has been stalled. The United States has offered to finance the mission but showed little interest in sending troops of its own.

While gangs expand their territory and band together in concerted attacks against the state, millions of people throughout the country are caught in the middle. Many are afraid to leave their homes for fear of getting caught in the crossfire. They are hungry. They are running out of clean water and gas. They are desperate.

“Around me, everyone is running,” said LaRoche, who packed up and closed three more medical facilities to avoid more looting. “Women, children and elderly have bags on their heads, and by foot, they are fleeing. It is a war zone.”

Gangs that in the past year have spread throughout the country joined forces last week to attack state institutions, releasing thousands of prisoners. They are demanding the resignation of Henry, who was prevented from returning to Haiti as violence surrounded the airport and grounded all flights.

The chaos has left people to protect themselves as best they can.

“The biggest fear is stray bullets,” said Nixon Boumba, 42, a Haiti-based consultant to American Jewish World Service, an international aid and human rights organization.

Last weekend, he called the motorcycle taxi driver he uses on a regular basis to go shopping. “He told me, ‘I can’t come now. My brother was hit by a stray bullet,’” Boumba said.

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