The FTSE 100 has started the week on the front foot. The index ticked higher following the German election, paving the way for higher defence spending and increased investment throughout Europe’s largest economy, lifting sentiment across the region.
London’s leading index was 0.1% higher at the time of writing, while the German DAX rose 0.3%.
The election results were largely in line with expectations, and the leading conservative CDU party will now have to set about forming a coalition government, which could take around two months.
“A dose of more certainty has been injected into European politics, with the Germany’s Conservatives winning the elections. It comes at a crucial time for the continent,” explained Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Three years on from the invasion of Ukraine, high stakes deal making between the US and Russia continues, Ukraine is out in the cold and the outcome will have huge implications for security in Europe.
“There is a dawning realisation that European nations will have to pull together and present a more united deterrent force, and Friedrich Merz, the CDU leader, is reading from that script. He has pledged to relax fiscal rules, to increase defence spending and inject the economy with much needed investment.”
In London, BAE Systems was one of the biggest beneficiaries of the German election result, with shares gaining more than 2%. The defence stock has been in focus since Trump’s approach to Ukraine appeared to suggest that Europe would be forced to bolster defence spending to help support Ukraine and prevent NATO from unravelling.
Miners were among the top fallers after the sector enjoyed a buoyant week last week. On Monday, short-term profit-taking targeted Anglo American and Antofagasta.
There was also minor profit taking in Standard Chartered and Pershing Square.
Centrica continued its march higher with another 2% gain after releasing an encouraging set of results last week.
Elsewhere in the utilities sector, National Grid shares rose 1.4% after announcing the sale of its US onshore renewables business for $1.7bn as part of its wider streamlining strategy.
“National Grid has to spend a lot of money to upgrade its electricity networks on both sides of the Atlantic and slimming down in other areas of the business has always been a component of that strategy,” said AJ Bell investment director Russ Mould.
“The sale of the company’s US onshore renewables business is not a rushed response to the Trump administration’s more sceptical views on green energy, but something which has been in the works for some time, having first been announced in May last year.
“The fact the company has got the deal across the line in the new political environment might be met with some relief. The price tag looks reasonable for a set of assets which made a modest contribution to the group.”