Singer said he sees U.S. politics contributing to market volatility in the lead up to the midterm elections, but so far he expects the overall impact on positioning to be neutral. While there has been much talk about a possible presidential impeachment should Democrats win back the House of Representatives, it may be more of a pre-election tool, Singer says. His analysis suggests that neither major party would really benefit from seeing such a scenario through to the end.

“Our focus in terms of interest rates and asset prices in the U.S. is in effect two public policy entities: the Federal Reserve, and everybody else,’’ Singer said. He said his strategy is prioritizing the input from the Fed, because “most of what we see coming out of the U.S. political arena from our perspective falls into the category of noise.”

In Memphis, Tennessee, FTN’s Vogel is also looking at political risk through the lens of the Fed. But the reference point for his analysis is historical rather than behavioral, and he doesn’t have to reach back as far as the political scandals involving former U.S. leaders Richard Nixon and Bill Clinton.

Confidence Hit

“We have a couple of templates that are reasonably recent of what political dysfunction can do to investor and business confidence, and the most recent example is the debt ceiling crisis of 2011,” Vogel said.

That threat to shut down the government came the year after Republicans re-took control of the House, and was their first protest over what they deemed excessive spending under the administration of Barack Obama. The standoff led credit assessor S&P to strip the U.S. of its AAA rating. As turmoil spread across the globe, then Fed Chairman Ben S. Bernanke committed to another two years of easy interest rates, spurring Treasury yields to historic lows at the time.

While Donald Trump has also flirted with the idea of a shutdown, Vogel says the dominant market risk today is trade protectionism. The challenge for investors is in picking the timing: Markets reacted very little to this week’s heavily-telegraphed imposition of U.S. tariffs on about $200 billion in Chinese goods, as well as the response from America’s biggest trading partner.

“We’ve been talking about what’s almost become the mythical $200 billion for three weeks now, and it’s hard to trade it because it’s just been looming,” Vogel said.

Treasury 10-year rates increased to their highest levels since May in the wake of this week’s news, although Wednesday’s high of 3.07 percent remains more than 5 basis points below its peak for the year. The Bloomberg dollar index is down around 0.4 percent this week, while S&P 500 futures are little changed from last Friday’s level.

Fed Focus