London pre-open: Stocks seen slightly lower as pound gains vs euro on German election

London stocks were set for a slightly weaker open on Monday as the pound gained ground against the euro after Angela Merkel secured a fourth term as German chancellor but with the tricky task of setting up a coalition.

The FTSE 100 was expected to open eight points lower at 7,302 as the pound rose 0.7% versus the euro to 1.1374 after Merkel's conservative bloc saw its worst result in nearly 70 years, taking 33% of the vote as anti-immigration Alternative for Germany (AfD) took 12.6% of the vote.

CMC Markets analyst Michael Hewson said: "While it was no surprise that Angela Merkel was able to win a fourth term as German Chancellor the parliamentary arithmetic became slightly more complicated with a much better than expected performance from the populist AfD which managed to get well above the 5% threshold which will give them a significant and probably presence in the German Bundestag over the next four years.

"Their performance in becoming the third largest party in German politics along with a disappointing performance from Martin Schulz’s social democratic party SPD which recorded a post war low in terms of vote share means that the forming of a coalition government is likely to be much more problematic than it was in 2013. With hindsight it would appear that his decision to leave his position as President of the European parliament was not one of his better ones. This weekend’s outcome is also likely to make the prospect of any sort of political reform of the EU much more problematic given the decline in the share of the vote of the combined two major parties."

Sterling was also stronger against the dollar, up 0.4% at 1.3560. A firmer pound tends to weigh on the main index as around 70% of its constituents derive their earnings from overseas.

In corporate news, Pennon, the water and waste group, said half year results remained "on track to deliver in line" for both businesses and it felt well placed for the rest of the year. After agreeing initial terms over the cancellation of the Greater Manchester waste disposal PFI contract, Pennon said "progress is being made on the final agreements".

Essentra confirmed that its health and personal care packaging sites at Manati and Guaynabo in Puerto Rico had been disrupted as a result of Hurricane Maria, although both sites remained “fundamentally intact”.

The FTSE 250 firm said despite that, there remained “significant impediments” to the resumption of manufacturing, including staff and client circumstances, power availability, and infrastructure damage.

It said the financial impact of the two facilities being out of operation was estimated to be between £0.5m and £0.7m per week.