Despite substantial political risks financial markets are rushing from one high to the next. We find that improving economic momentum indicators since mid-2016 largely swamp political worries, while the impact of monetary policy on the risk-return expectations is still dominant. The disconnect between political uncertainty and market performance is unlikely to last. Monetary stimulus will be withdrawn. The recovery will peak at one point. Assuming that the political risk level will remain high, markets will reconsider, although an immediate sharp reaction looks unlikely.
