European stock markets fell back decisively on Tuesday, with investors responding to an expansion of hostilities in the Middle East that imperilled regional stability and drove demand for safe assets outside the Gulf.
At 03:05 ET (08:05 GMT) the German DAX was down 1.9%, France's CAC 40 slipped 1.2% and the U.K.'s FTSE 100 fell 1% as trading got underway.
Geopolitical tensions deepen
Markets were reacting to reports that the conflict between the U.S. and Iran, which flared over the weekend, has the potential to spread across the Gulf. Accounts in the market said the U.S. embassy in Riyadh came under attack from missile strikes and that Amazon data centres in the UAE and Bahrain were targeted as Iran retaliated with strikes across several Middle Eastern countries. Those developments prompted commentary that the Gulf's reputation as a relative safe-haven, including cities such as Dubai, is under unprecedented strain.
At the same time, Israel reported it was targeting Iran and Lebanon, after Tehran-backed Hezbollah attacked Tel Aviv using missiles and drones. The U.S. State Department ordered the departure of non-emergency U.S. government personnel and family members from Bahrain, Iraq and Jordan. In remarks reported overnight, U.S. President Donald Trump said the U.S. will do "whatever it takes" to achieve its military objectives, language that market participants interpreted as signalling sustained operations - and the comment suggested the operations could last several weeks.
Corporate earnings: mixed results amid the geopolitical focus
Even as headlines were dominated by the conflict, several European companies released earnings that provided a varied picture of corporate performance for investors to consider.
- Thales (EPA:TCFP) posted fourth-quarter figures that beat analyst expectations, driven by strength in its Aerospace and Defence segments while its Cyber & Digital division remained weak.
- SIG Group (SIX:SIGNC) reported a loss for 2025 after recording c350.7 million in non-recurring charges related to a strategic review; the Swiss packaging company's revenue was broadly stable in a soft market.
- Kuehne & Nagel (SIX:KNIN) recorded a 24.8% decline in annual profit for 2025, citing currency pressures and weaker margins; its equity ratio fell to 18.5% from 27.8% a year earlier.
- Lottomatica (BIT:LTMC) exceeded full-year 2025 expectations with 21% profit growth, benefiting from continued gains in online market share.
Macro data and commodity moves
Investors will also be watching a Eurozone flash consumer inflation reading due later in the session. The annual headline figure is anticipated at 1.7%, the same level reported in January, while the equivalent core measure - which excludes food and energy - is expected at 2.2% year-on-year. The inflation prints will attract attention given rising energy costs tied to the deteriorating security environment in the Gulf.
Oil prices extended a recent rally, amplifying concerns about supply. Brent futures jumped 4.3% to $81.10 a barrel and U.S. West Texas Intermediate rose 4% to $74.05 a barrel. Both contracts had closed more than 7% higher after moving as much as 13% to one-year highs on Monday. Market participants pointed to threats to shipping through the Strait of Hormuz and a vow by Iranian officials to attack any ship attempting to transit the waterway as factors underpinning the move higher in crude.
Implications for investors
The widening conflict has prompted a shift in risk appetite across European markets, with energy and logistics-sensitive sectors reacting to higher oil prices and potential disruptions to trade routes. Defence and aerospace names showing stronger earnings contrasted with companies exposed to currency headwinds, weak margins or one-off charges.
As the session progresses, market participants will weigh corporate reports, the Eurozone inflation flash, and any further developments in the Middle East for direction. The combination of heightened geopolitical uncertainty and rising energy prices will remain prominent factors shaping trading dynamics.