London pre-open: Stocks seen higher as pound hit by hung parliament

London stocks were set for a positive open on Friday as the pound took a hit after the Tories lost their majority in a general election that resulted in a hung parliament.

Ahead of the London market open, the pound was down 2% against the euro and the pound at 1.1325 and 1.2699, respectively, as PM Theresa May's gamble on a snap election to give her a stronger mandate in Brexit negotiations backfired in spectacular fashion, leaving her future in doubt.

May has fallen short of the 326 seats needed to deliver a majority Conservative government in the 650-seat House of Commons, just days before Brexit negotiations are due to kick off. With 645 out of the 650 seats declared, the Tories were on 314 seats while Labour had 261. The Conservatives are predicted to win 318 seats and Labour 262.

The FTSE, which tends to benefit from a weaker pound as around 70% of its constituents derive their earnings from overseas, was expected to open up 40 points at 7,490.

CMC Markets analyst Michael Hewson said: "With Brexit talks due to start in a few days’ time there is now some doubt about the prime minister’s future, but also the strength of the UK’s negotiating position with respect to the Brexit talks. The admission by Brexit secretary David Davis that the loss of the Conservative majority would mean that the mandate to leave the single market and customs union has gone, throws into doubt whether Brexit will now happen at all.

"The uncertainty that this new situation has now created doesn’t look as if it will spill over too much into the equity markets when European markets open later this morning, with the FTSE100 set to open higher, though the FTSE250 might lag behind, due to the uncertainty created by this new political environment. This could change further depending on the makeup of any new minority government."

Meanwhile, Ross Mould, investment director at AJ Bell, said that once the market has calmed down, hopes for a softer, less combative approach may help the pound and also the UK stock market in the face of the uncertainty which the election result has thrown at investors.

"Any talk of a softer Brexit could help financial services stocks and banks, while any marked pound weakness could put the spotlight back on those overseas plays, exporters and dollar earners who did well in the wake of the EU referendum result but have lagged the FTSE All-Share’s more recent advances - the miners, the oils and US-exposed names like Ashtead and Wolseley.

“In the very short term, the identity of the next Prime Minister and the parties who form any coalition will go a long way to shaping sentiment, in addition to the rate at which any negotiations are concluded."

In corporate news, Centrica announced that the CQ Energy Canada Partnership, the Canadian E&P joint venture in which it owned a 60% interest, was to be sold to a consortium comprising MIE Holdings Corporation, the Can-China Global Resource Fund and Mercuria for a purchase price of CAD 722m (£413m) in cash. The company's net share of sale proceeds was expected to be approximately £240m after adjustments.

On the data front, industrial production and manufacturing production figures are at 0930 BST, along with the goods trade balance.