The fact that the South African rand is also recovering, after a spectacular fall on Friday, also suggests that traders have decided that the risks raised by omicron have been adequately priced for now. Its rate against the Japanese yen, which had its best day since the spring shutdown of 2020 as people returned to it as a haven, has shifted spectacularly on the news:

Monday has started with very muted declines for Asian stocks, and bounces in U.S. futures and the oil price. Absent fresh bad news, it seems a fair bet that risk will be back on as the week starts, although it’s hard to see markets getting all the way back to their previous peak while important Omicron questions remain unanswered. 

Omicro-Economics
What might matter more is the effect that the new variant has on monetary policy. Friday’s reaction was dramatic. If fed funds futures are to be believed, the market put its predicted second rate hike for next year in December rather than November, and now sees little chance of a third hike, even though this had been rated as a virtual certainty when traders left for Thanksgiving. The omicron news shifted monetary policy expectations to become, now, significantly easier than they were at the beginning of the week, before Jerome Powell’s re-nomination as chairman of the Federal Reserve was announced.

If we take as a base case that this slows down re-opening as much as the delta variant, but no more, then that seems reasonable. The economy does get that much more vulnerable, growth is weakened, and it is harder to justify tighter monetary policy.

But this points to the dangerous situation for the Fed. Wednesday’s raft of economic data had given Americans, and the central bank, much to be thankful for. Most strikingly, the number signing on for unemployment insurance hit its lowest since 1969. Whatever has been gluing up the jobs market, it now looks like things are moving.

Employment this strong gives ample political cover for the Fed to start raising rates. Indeed, with monetary policy so easy, it makes it hard not to start hiking.