US stocks extended gains for a third consecutive session on Wednesday as investors welcomed encouraging news about the Omicron variant and prospects the economic recovery could continue. Pfizer and BioNTech said three doses of their vaccine are effective at neutralizing the Omicron variant and other studies suggested that although the new strain is more contagious it appears to be less severe than initially expected. The Nasdaq composite rose as much as 0.6% and the S&P added 0.3% supported by travel stocks such as airlines and tech mainly Apple and Facebook. In meantime, the Dow Jones managed to erase early session losses to close 0.1% higher but financials and consumer staples limited the gains. On the data front, traders eye fresh US CPI data due Friday, which is likely to show inflationary pressures persist, strengthening the case for the Fed to continue to tighten.

The Central Bank of Brazil unanimously decided to raise the Selic rate by 150 basis points to 9.25% on December 8th, as expected. It was the seventh consecutive interest rate hike in 2021 and policymakers see another interest rate increase by the same margin at the next meeting. The committee said that accordingly to the balance of risky it is appropriate for the tightening cycle to advance significantly into the restrictive scenario, in order to consolidate a disinflation process and anchor the expectations. Both the forecasts from the monetary authority and the market participants show that inflation in 2022 could come near to the upper bound of the central bank target (5%). Also, the policymaker said that recent questioning regarding the fiscal framework increased the risk of deanchoring inflation expectations. Meanwhile, recent growth indicators released since the last meeting showed a slightly worst than expected performance for the economy.

European stock markets closed in negative territory on Wednesday, with retail stocks leading losses, amid ongoing concerns over the impact of the new omicron coronavirus variant on the global economy. The UK is reportedly set to announce COVID-19 restrictions this week, such as restricting access to large venues to holders of a health pass. Meanwhile Pfizer said a 3rd dose of their vaccine was effective at neutralizing the omicron variant but also admitted that it may spread faster and could lead to more mutations in the future. On the corporate front, shares of Nestle (+1.6%) and L'Oréal (-1.9%) will be in the spotlight after Nestle said it would cut its stake in L'Oréal by around 20%. At the bottom of the Stoxx 600, German meal kit delivery firm HelloFresh (-10.9%) set its 2022 EBITDA guidance between €500M and €580M, widely missing market expectations. On the political front, Olaf Scholz was approved by the parliament as the chancellor of Germany, replacing Angela Merkel.

The Bank of Canada decided to keep its target for the overnight rate at 0.25%, in line with forecasts and to maintain its forward guidance, which sees a rise in the overnight rate sometime in the middle quarters of 2022. Until then, policymakers vowed to provide an adequate degree of monetary stimulus to support Canada’s economy and achieve the inflation target of 2%. On the price front, the ongoing supply disruptions continue to support high inflation rates but gasoline prices, which have been a major upside risk factor, have recently declined. Still, the BoC continues to expect inflation to remain elevated in the first half of 2022 and ease towards 2% in the second half of the year. Finally, recent economic indicators suggested the economy had considerable momentum in Q4, namely in the labor and housing markets, but the omicron variant of the coronavirus and the devastation left by the floods in British Columbia added to downside risks.

The Brazilian real strengthened to just above 5.53 per USD, getting closer to a 3-week high of 5.5292 hit on November 17th, amid an increase in risk appetite as the new Covid-19 variant, Omicron, is not likely to slow global economic recovery, while fears over lower demand for commodities from China waned after its central bank decided to cut the bank reserve requirements. China is one of the top metal consumers in the world so an economic slowdown could directly impact the prices of commodities namely iron ore - Brazil’s major exports. Meanwhile, the Brazilian central bank increased the borrowing cost by 150 bps, as expected, despite the current technical recession, and also announced another rate hike of the same margin in its next meeting. The policymakers understand that it is time to move significantly into more restrictive territory, in order to consolidate the disinflation process and curb inflation expectations.

Toronto’s main stock index, the S&P/TSX, closed 0.4% lower at 21,077 on Wednesday, snapping a two-day rally as tech stocks weighed on the index, while weaker bullion pressured miners. Also, the Bank of Canada decided to keep borrowing costs unchanged, while maintaining its guidance on interest rate hikes, which are expected to hike sometime around the middle quarters of 2022. On the corporate side, Cenovus Energy Inc. forecasts higher capex investment and oil production next year, as the company bets on a sustained recovery in oil prices to also allocate 50% of 2022 excess free funds flow to shareholder returns.