Up go the yields, down go equities [Video]

Hotter-than-expected inflation data pushes the European yields higher. The higher yields support recovery in the euro, but not the European stock valuations.

Across the Atlantic Ocean, the news is not great, either. The ISM manufacturing index revealed a slower contraction in February, but the improvement compared to the last month was less than expected.

A slowing economic growth is not bad news for the Federal Reserve (Fed), but the mounting price pressure is. This is what the ISM report revealed yesterday, and further fueled Fed hawks.

Activity on Fed funds futures now gives more than 30% chance for a 50bp hike at the next meeting, and Fed swaps price in a peak Fed rate of around 5.5%. This number was around 4.9% at the start of the year.

Consequently, the US 2-year yield continues its steady climb toward to 5% mark, and the 10-year spiked above the 4% psychological level yesterday.

The S&P500 tested the critical 200-DMA to the downside. There is major speculation about an aggressive selloff below this 200-DMA level. And given the persistent positive pressure on the yields, clearing the 200-DMA support is not a matter of if, but a matter of when.