Graphics settings corrupted when switching between laptop's Retina display and external monitor

Parallels Desktop 12 for Mac Pro Edition version 12.1.3
MacBook Pro 15" 2016, 16GB RAM, Radeon Pro 250 2GB VRAM, Intel HD 530
macOS Sierra 10.12.3
Windows 10

I setup my Windows 10 VM with 8GB of RAM, 512MB of VRAM, graphics set to "Best for external displays", DirectX 10, Vertical sync off. It worked great when I set it up using my external monitor (LG Ultra HD display, 27", USB-C to DisplayPort). Graphics work great, resolution is good, DPI settings are good. I suspended the VM and disconnected my external monitor. I started the VM. It came up just fine on my laptop's screen albeit with a higher resolution. When I plugged my external monitor back into my laptop and started up the VM, the resolution was very low and when I clicked the screen to bring up the login screen, the screen went blank and the mouse started jumping around. I typed in my password blindly and it logged in to the Window's desktop just fine. The resolution was a little off although not as low as the welcome screen. I launched Chrome and resized the Chrome window. The resizing was very choppy and the video would intermittently cut out eventually resulting in a completely black screen. It wouldn't release the mouse cursor until I hit CTRL+ALT which I didn't have to do before the video problems started. When I exit full screen, the login screen shows up just fine, but the Windows modal (?) is TINY. The Chrome window resizing works like it did before...no choppiness. When I go back into full screen mode, the graphics are messed up again.

Is this an issue with the new MacBook Pros? Is this due to my external monitor? Is there a known issue with Parallels 12?

 

Please try reinstalling Parallels Tools http://bit.ly/1cZWAa3 and keep us posted the result.