• Optimism prevails as investors see glass half full over Omicron threat
• Asia lifted by Wall Street jump but futures point to some easing in rally
• FX markets mostly steady, loonie at 2-week high ahead of BoC decision

Pre-Christmas cheer came early for equity markets as investors celebrated the growing view that the newly discovered Omicron variant is not more dangerous than the Delta strain. Early evidence suggests that Omicron causes less severe illness than the other variants even though it appears to be the most contagious form of Covid yet.

So far, traders have been embracing the slightest bit of positive news about Omicron, welcoming a preliminary study that shows the Pfizer-BioNTech vaccine offers some protection even though it is significantly less than for other variants. News that a new antibody-based treatment drug is effective against the Omicron strain further reinforced hopes that drastic virus restrictions won’t be necessary.

With investors optimistic that the Omicron outbreak won’t significantly dampen the festivities and lead to winter-long lockdowns, risk assets have bounced back from last week’s panic selloff. Even the tech-heavy Nasdaq posted an incredible rally on Tuesday, surging 3%, despite Treasury yields also rebounding quite strongly.

The S&P 500 closed up 2%, while the Dow Jones finished the session 1.4% higher. Asian shares extended the rally today as monetary easing in China lifted sentiment, offsetting the worrying trend of a lengthening list of local property developers missing their debt payment deadlines.

China has announced a series of measures in recent days aimed at reviving the property sector as well as boosting overall growth in the economy. China’s benchmark stock indices were up more than 1% today, though they’ve been lagging their Asian and global peers all year.

In contrast, the Chinese yuan has been steadily firming in recent months, hitting a 3½-year high versus the US dollar today.

In Europe, stocks opened mixed and US e-mini futures were also pointing to some moderation of the upside momentum.

There was a mixed mood in FX markets on Wednesday as the US dollar lacked a clear direction amid some caution ahead of Friday’s CPI data out of the US and the FOMC meeting next week.

The Australian dollar was the only one from the commodity-linked currencies that was able to stretch its advances against the greenback, climbing to a one-week high of $0.7143.

Relief over the Omicron variant not being as dangerous as first feared has been driving the riskier currencies higher this week, with the aussie and loonie being the main beneficiaries of the improving mood.

The Canadian dollar brushed a fresh two-week high at the start of the session before pulling back slightly. The latest robust employment and trade data out of Canada, combined with waning worries about Omicron and soaring oil prices, have strengthened expectations that the Bank of Canada will sound upbeat at its policy meeting today.

The BoC announces its decision at 15:00 GMT and investors will be looking for clues that policymakers are considering bringing forward their rate hike timeline.

The New Zealand dollar also turned lower after a positive open on Wednesday. The kiwi’s paltry rebound this week has been disappointing, but sterling’s performance has been even worse. The euro, however, found itself on a steadier footing after staging a surprise bounce-back on Tuesday.

In commodities, gold edged up for a second day, rising towards $1,790/oz amid some geopolitical tensions between the US and Russia over Ukraine. US President Biden held a two-hour video call with Russian president, Vladimir Putin, yesterday, though it’s unclear whether the meeting will lead to a de-escalation of the situation.