The Australian share market was in free fall this morning — down as much as 3.2%, wiping more than $40 billion from the market by lunchtime. Bad news here and overseas has traders decidedly nervous.

The strengths and weakness of Australia’s current economic and financial pictures were well illustrated in separate reports this morning. Share markets and commodity prices fell, driving down the value of the Aussie dollar after the widespread falls Friday night in Europe and the US, but two surveys showed the Australian employment ad market recovered ground last month.

Japanese share prices dived more than 3%, taking their lead from a slump on Wall Street, which was depressed by disappointing US jobs data for May and more suggestions of sovereign debt problems in Europe. Australian shares fell by the same amount in the first hour and a bit of trading and wiped over $40 billion from the market’s valuation.

The US dollar jumped, driving the Euro to a new four-year low of $US1.19 in Asian trading, forcing the Aussie dollar down to close to 81 US cents and more than 3.4 US cents under its Sydney close last Friday. Copper and oil fell by 2% to 4% in Asian trading this morning. Oil dropped under $US70 a barrel again; copper shed another 7 US cents a pound in electronic trading.

But surveys from the ANZ Bank and the Advantage Job Index showed the job market had a good month in May. The ANZ job ads survey revealed a 4.3% rise in May, thanks to a very strong rise in internet ads that offset a surprisingly weak 6.5% in news ads. Internet ads rose 5% last month and recorded the best growth since April 2008. The fall in newspaper job ads was the biggest fall since January and bad news for the likes of Fairfax Media and News Ltd.

And the Advantage Job Index (formerly the Olivier Job Index) showed a 5.47% jump last month, the biggest increase so far this year. This compares with a 1.74% dip in April after three consecutive months of growth and is good news for groups like Seek.

World financial markets turned brittle and very, very nervous on Friday, thanks to an odd story about Hungary’s weak financial position, unsubstantiated rumours about a French bank and, more importantly, the disastrous jobs report for May in the US.

It left a lot of really worried people around the world, bankers, investors, regulators, including central bankers, governments and people, wondering just what message markets are sending us at the moment. The unbridled optimism about the global recovery, led by China and the US.

There won’t be too many monthly US jobs report that will match Friday’s shocker and made fools of everyone. Every major forecaster got it wrong in a spectacular example of how far the bullishness about the US recovery has run ahead of the reality.

The headline sounded good: 431,000 jobs created, not the 536,000 forecast in surveys from groups like Bloomberg, or 513,000 (Reuters), but a lot of new positions. But that was completely misleading: of that total, 411,000 were jobs associated with the forthcoming US Census (as suggested in Crikey on Friday). Private jobs were just 41,000 (20,000 net); 139,000 less that market estimates (218,000 private jobs were created in April). The unemployment rate fell to 9.7% from 9.9% because more people stopped looking for work. In short the US economy is not in the sort of recovery analysts think.

As an example of how forecasters got it so wrong, Goldman Sachs economists on Thursday upped their forecast for the number of new jobs created in the US in May to 600,000. Very, very short of the mark.

And this was an important miss for forecasts and policymakers because there is a push developing in the US to start the Fed lifting interest rates because the recovery (3.0% annual rate in the first quarter, down from 5.6% in the 4th of 2009). At least one Fed member believes rates should rise, but from the post meeting statements, Fed chairman, Ben Bernanke doesn’t.

Friday’s jobs figures show that Bernanke and the Fed staff have a far better understanding of the state of the US recovery, than to the more highly paid economists and others in the private sector, plus their boosters in academia and in politics.

The jobs report underlined the fragility of the recovery, and there was the Group of 20 finance ministers at the weekend saying they had abandoned fiscal stimulus and were now in favour of fiscal retrenchment (cutting spending and debt). With Europe looking at growth of just over 1%, Japan perhaps 3% and slowing, and the US around the same, only Asia and most emerging economies are showing solid growth. Australia last week saw a sharp slowdown in activity reported in the first quarter of 2010.

The US economy should be creating more jobs at this stage in its evolution than it is at the moment, it is stuttering and so is recovery elsewhere.

That’s the message falling commodity prices have been telling us now for over a month. Copper in particular is now down around $US2.81 a pound, against the most recent peak of over $US357 a pound. Copper is the lead indicator among commodities for economic growth because China and other emerging economies use so much of it. That’s a fall of 21% since the most recent peak in New York in mid April.

We normally don’t do a race call of the closing markets around the world, but last Friday was a very special case. Led by oil, copper and lead, metal prices fell very sharply. Lots of speculative money has quit commodities in recent months because of the mixed outlook. It’s perhaps the prime reason why the Australian dollar has fallen from a recent high of just over 93 USc to just over 82 USc on Friday.

The Dow fell a massive 323.31 points, or 3.15%, to 9,931.97 on Friday. The Standard & Poor’s 500 Index 37.95 points, or 3.44%, to 1,064.88. Nasdaq Composite Index tumbled 83.86 points, or 3.64%, to 2,219.17. For the week, the Dow lost 2%, the S&P 500 fell 2.3%, and the Nasdaq dropped 1.7%.

The S&P 500 fell below 1,070, which had been considered a support level for the market. The index closed just below the intra-day low the market reached during the so-called ‘flash crash’ on May 6. The Dow sank below 10,000 and both indexes ended at the lowest levels since February 8.

Oil fell 4.2% to $US71.51 a barrel, while tin shed nearly 10% to lead declines in metal prices. Ten-year Treasury bond yields decreased 17 basis points (0.17%) to 3.2%. Hungary’s forint plunged to an almost 15-month low against the dollar on concern Hungary may default. As a result the Euro slid below $US1.20 for the first time since March 2006 and the Yen climbed against all 16 major counterparts.  The Aussie dollar lost just over 2 USc to close at 82.34 on Saturday morning in New York.

In London, zinc plunged to a 10-month low, nickel and tin hit their lowest levels in nearly four months, aluminum sank to a near eight-month low, and lead sank to its lowest in almost a year. Comex July copper in New York fell 12.70 cents, or 4.3%, to settle at $US2.8190 per lb, the lowest level since October 13. Nickel and tin hit their lowest levels in nearly four months, aluminum sank to a near eight-month low, and lead sank to its lowest in almost a year.

The fall in metal prices might be halted with some Chinese buying at these prices (China traditionally starts sucking up commodities when prices are low). That would tell us China’s economy isn’t going off the edge, but it has stopped its rapid growth and will now consolidate while property and inflation are brought under control.