The deepening political controversy in Washington or in other words, the still ongoing U.S. political risk, suddenly caught the attention of the markets with the dollar index retreating to levels last seen in November, the VIX, or Wall Street’s volatility gauge, spiking higher and in equities, banks booking losses between close to 2 percent and close to 6 percent.

Was it the appointment of former FBI-director Robert Mueller as special counsel by the Office of the Deputy Attorney General to look into the Russian question that turned definitively off the market’s risk-on handle, we still don’t know.

Anyway, the evolving events will keep the issue alive. 

No doubt, there is going to be a lot of media noise and a lot of political noise about this.

For markets and therefore for investors it might be helpful to recap the main points that should better be kept in mind for having or trying to have some kind of a clue where markets could go.

There are four main points:

First: Politicians do not matter that much. Near-term growth is driven by the answers to 2 questions: 1. Do I have a job? 2. Can I afford to buy what I want to buy? The underlying economic position of the United States remains relatively strong and is showed by the just released data by the Atlanta Fed that now forecasts U.S. GDP to grow at a 4.1 percent annualized pace during the second quarter.

Second: Politicians can influence long-term growth through their legislative agenda. They can also influence relative performance by favoring or harming a specific part of the economy through regulation, taxation and legislation.  

Third: There will be a lot of talk of impeachment and the 25th amendment, including now also from Republicans. This creates good television, but it is not good for risk analysis that investors should better do or try to do now during these times of political uncertainties, yes in plural.

For investors, the most urgent issue is if the authority of the White House that has to pursue its legislative agenda will remain in place.

It might be good to recall that when under President Reagan the congressional committees investigating the Iran-Contra affair were formed in January of 1987 it took till November of that year before their report was published, hereby keeping in mind that 1987 was a year when legislators were not focusing on other things.

Fourth: There is an additional risk of policy uncertainty. If President Trump is haunted by Congress and doubles down on those areas he can control through executive order. Trade is one of those areas. It is perhaps worth observing that yesterday, there was an escalation of U.S. sanctions against Iran whereby the U.S. imposed new measures aimed at punishing Iran for developing ballistic missiles while continuing to suspend sanctions linked to its nuclear program.

Coming back to the first point that politicians do not matter that much because it is the near term economic data flow that is of interest. Japanese GDP came out overnight somewhat stronger than expected, led by foreign demand. The domestic economy was not so good and prices are still narrowly falling and more than had been anticipated. However, foreign demand buoyed things along.

This is further evidence that the U.S. first quarter GDP data was the wildest of wild stabs in the dark.

There aren’t many things that one can assert with confidence in the world of economics, but asserting that the U.S. did only grow at 0.7 percent during the first quarter comes close.

The quality of U.S. data has been deteriorating in recent years and the evidence from a wide range of other sources, including hints from things like the Japanese GDP data, is that U.S. first quarter GDP growth was clearly better than has been reported.

This is important for the Fed’s planned tightening cycle that should start in June, but that markets started to doubt about because of the ongoing political upheaval in Washington.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.