Job Losses = Dollar Drop = Oil Rise = Stock Market Crash

The unemployment rate rose from 5.0 to 5.5 in May, and nonfarm payroll employment continued to trend down (-49,000), the Bureau of Labor Statistics of the US Department of Labor reported today.

– May Jobs Report, BLS

If Iran continues its nuclear weapons program, we will attack it.  Other options are disappearing. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear program.

– Israeli Deputy Prime Minister Shaoul Mofer (subscription required), quoted in the daily newspaper Yediot Aharonot

I think the only way to explain the surreal action in the market today is to understand the interconnections between the currency, commodity and equity markets.

The catalyst for today’s action was the worse than expected May Jobs Report which showed a loss of 49,000 jobs in May and a jump in the unemployment rate from 5.0% to 5.5%.

That report led to a massive selloff in the dollar as you can see from the spike in the Euro versus the $ at 8:30am EST, when the jobs report was released ($ Euro Intraday Chart).  That’s because a weak job market means the Fed isn’t going to be able to raise rates and will have to keep them low for a long time and possibly even lower them some more, which is bearish for the dollar.

Oil, then, which has been trading a lot like an inflation hedge and inversely to the dollar, taking its cue from the dollar selloff surged (Picture Of Traders At The New York Mercantile Exchange Friday).

Equity markets were then faced with a double whammy, the weak Jobs Report and surging oil prices, which together resulted in today’s massive selloff.

With today’s 44 point selloff in the S&P down to 1361 I think we can with some confidence say that the 9 week rally from Mon March 17 through Mon May 19 which took the S&P from an intraday low around 1260 to an intraday high around 1440 was in fact a bear market rally and that the bear market rally is now over (S&P YTD Chart).