European Stocks Edge Higher as Markets Weigh Iran Risks, U.S. Inflation and Earnings Season

European equities traded mixed to slightly higher on Tuesday, as investors balanced a positive lead from global markets against rising geopolitical tensions, key U.S. inflation data, and the start of a crucial earnings season.

By 03:05 ET, Germany’s DAX was up 0.1% and the U.K.’s FTSE 100 gained 0.1%, while France’s CAC 40 slipped 0.1%, reflecting a cautious tone across the region.

Sentiment in Europe was supported by Wall Street’s strong finish overnight, where the S&P 500 closed at a record high, led by gains in technology stocks. Optimism also carried over from Asia after Japan’s Nikkei 225 touched a new peak, aided by reports that Prime Minister Sanae Takaichi may call an early election to strengthen her parliamentary majority, a move that could pave the way for additional fiscal stimulus.

Still, gains in Europe remained restrained as investors monitored escalating tensions in Iran. Widespread anti government protests have been met with a violent crackdown, with reports of heavy casualties. U.S. President Donald Trump warned that any country doing business with Iran would face a 25% tariff on trade with the United States. Iran’s major trading partners include China, several East Asian economies, Iraq, the United Arab Emirates, Turkey, and Germany, raising concerns about potential spillover effects on global trade.

Trump is also expected to meet senior advisers later in the session to discuss options on Iran, keeping markets on edge over the risk of further escalation.

With little in the way of major European data, attention turned firmly toward the United States, where December consumer price inflation is due later in the day. Economists expect headline CPI to remain at 2.7% year on year, unchanged from November, with monthly inflation also seen steady at 0.3%. Core inflation, which excludes food and energy, is forecast to edge higher to 2.7% annually from 2.6%, and to 0.3% on a monthly basis from 0.2%.

This report is the final major inflation reading before the Federal Reserve’s policy meeting at the end of the month and is expected to play a central role in shaping expectations for interest rate policy in early 2026.

In corporate news, Swiss chocolatier Lindt & Spruengli reported organic sales growth of just over 12% in 2025, slightly ahead of expectations, benefiting from higher cocoa prices. Swiss construction chemicals group Sika posted a 4.8% decline in annual sales, as weak construction markets and currency effects outweighed growth in local currencies. In the U.K., Whitbread reported a 2% rise in third quarter group sales, supported by stronger accommodation revenue in both Britain and Germany.

Market focus later in the day will shift across the Atlantic, where JPMorgan Chase and Bank of New York Mellon are set to report results, marking the start of the U.S. earnings season. Expectations for banks remain high, but uncertainty has grown after President Trump announced plans to cap credit card interest rates at 10% from January 20, a move that could complicate the outlook for lenders.