A trader monitors financial data at the Frankfurt Stock Exchange in Germany. Alex Kraus | Bloomberg | Getty Images

The German stock market tumbled on Monday as investors reacted to news that German Chancellor Angela Merkel's party and the Social Democrats (SPD) failed to agree to a coalition government on Sunday. Talks between the parties are now continuing into Monday and perhaps beyond. The German DAX opened 100 points lower at 12,685 on Monday morning, before falling further to trade 140 points, or 1.1 percent, lower. By mid-morning, the DAX had pared some losses but was still trading 83 points lower. Market jitters have risen over the possible outcome of talks between Merkel's Christian alliance of Christian Democrats and Christian Social Union (CDU-CSU) and the SPD. The global market sell-off is not helping sentiment either. It is now months since the country's federal election back in September 2017, which failed to produce an outright winner. The result led to protracted talks between major and minor political parties in Germany aimed at forming a coalition government.

'Going into talks with goodwill'

On Sunday, Chancellor Merkel said that her conservative bloc faced tough negotiations with the SPD, and talks passed a self-imposed midnight deadline. Reuters reported that the parties had reached agreements on migration, energy and agriculture but continued to debate healthcare and labor policies. It was also announced on Monday that the parties had reached agreements on Europe, pledging to to invest more in the euro zone and end austerity. On Sunday, Merkel said it was "not yet possible" to say how long talks could last.

"We did good groundwork yesterda,y but there are still important issues that need to be resolved," Merkel said before heading into negotiations, Reuters reported. "I'm going into talks with goodwill today, but I also expect that we'll face difficult negotiations," she said. Meanwhile SPD General Secretary Lars Klingbeil said on Sunday: "We had a very constructive day today and we reached a lot of agreements," telling reporters that talks were "heading into the homestretch."

Long-running impasse

The SPD somewhat reluctantly agreed late in 2018 to hold coalition talks with Merkel's conservative alliance after her attempt to form a coalition government with two other parties, the pro-business Free Democrats and the Green party, failed. The SPD has been in government with Merkel before, so it is a tried and tested alliance but the SPD, under leader Martin Schulz, had previously vowed to remain in opposition. In return for its backing this time, the party has said it will extract deep concessions from the CDU-CSU, making talks more contentious.