Short covering helps the USD ahead of jobs data

- Forex: Low volumes in forex markets did not lead to abnormal volatility, with the USD benefiting from short covering ahead of the NFP data. The CME payroll derivatives auction settled at 121.6k this morning (below estimates), and analyst estimates range from +70K (BNP Paribas) to +240K (Citi). The AUD/USD consolidated near 0.8200, with technical analysts saying that the risk of a pull back remains as bearish divergence conditions are seen on 4hrs charts. The NZD traded slightly lower, with markets pricing in a 36% chance of a RBNZ rate hike at the April 26 meeting vs. 22% priced in after the March 8 meeting (Credit Suisse Index). Japanese Finance Minister Omi said that he does not expect a specific JPY debate at the G7 meeting, adding that the G7 will discuss "various currencies". The CNY was set at a new post-revaluation high against the USD after the PBoC hiked the reserve ratio. The USD/CHF continued to consolidate, with technical analysts saying a break of 1.2082 support is needed to signal such consolidation has ended. Both the Thai Baht and the Korean Won gained on improving risk appetite, equity gains and Chinese tightening.

- Equities: After opening in positive territory, Japanese stocks slid into negative territory as traders remain sidelined ahead of the nonfarm payrolls number. Japanese property shares declined as investors took profits on recent gains. In M&A, a group of major Japanese banks will put together a line of credit for Citigroup of at least ??1.4T (if Citi buys 100% it will require ??1.67T). A third Nikko investor has pressured Citi to raise its offer. Despite the Chinese central bank announcing a 0.5 percentage point rise in banks reserve requirement ratio on Thursday, South Korean equities surged to a new record. Posco Steel is up sharply as traders position themselves for a good earnings release next week. China's Asia Pulp and Paper, one of the world's largest paper companies, said that U.S. sanction on Chinese coated paper is "unfair", adding that they hope the U.S. "quickly" corrects its mistake. Australian markets were closed for a holiday.

- Survey shows that Japanese economic growth slows dramatically: The Conference Board's leading index for Japan decreased 0.1%, while the coincident index increased 0.5% in February. With February's decrease, the six-month growth rate of the leading index slowed to a 0.2% (almost a 0.5% annual rate), well below the range of 1.0% - 1.5% annual rate it has been fluctuating in the last several months. The survey did show some signs of improving Japanese consumption. A strong pick up was seen in the number of employed persons as well as continued strength in February real retail, wholesale, and manufacturing sales.

- Investor appetite for risk increases: The avg spread for developing countries' bonds over U.S. Treasuries fell 3 basis points to 1.61 percentage points today, a record low since the index began in 1997 (JP Morgan index). JPY near term movements are likely to be dictated by the changes in risk appetite.

- China Q1 business confidence rises to record 142.0 v 135.2 in prior quarter.