(Sharecast News) - European stocks pulled back from recent highs on Tuesday and edged into negative territory as fresh geopolitical and trade concerns weighed on sentiment.
The pan-European Stoxx 600 fell 0.15% to 610.06 after US president Donald Trump threatened to impose sweeping tariffs on countries trading with Iran, reigniting fears over global trade disruption and energy supply risks.
Despite the softer close, Dan Coatsworth, investment analyst at AJ Bell, noted that "the FTSE 100 held steady just below its recent record highs early on Tuesday despite the ongoing geopolitical tensions which have been a feature of 2026 so far".
National markets were mixed.
Germany's DAX was marginally higher, up 0.02% at 25,411.44, while France's CAC 40 slipped 0.14% to 8,347.20 and the UK's FTSE 100 eased 0.03% to 10,137.35.
Investors reacted to Trump's warning that any country doing business with Tehran would face a 25% tariff on exports to the United States, a move framed as part of Washington's response to Iran's violent crackdown on anti-government protests.
"Effective immediately, any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America," Trump said, adding that the order was "final and conclusive".
China, the United Arab Emirates and India are among Iran's major trading partners.
Coatsworth observed that "the Trump administration's announcement of a 25% tariff on countries doing business with Iran, and continuing suggestions of potential military intervention amid the escalating protests in the country, do not seem to be spooking markets too much right now."
Energy markets reflected the heightened tensions, with Brent crude jumping 2.57% to $65.51 a barrel as investors fretted about potential threats to supply from the world's fifth-largest oil producer.
Patrick Munnelly, market strategy partner at TickMill, said Brent had "surged to its highest level since November, driven by comments from former President Trump about potential sanctions on nations dealing with Iran".
Meanwhile, political pressure on US monetary policy added another layer of uncertainty after a group of central bank chiefs issued a rare joint statement backing Federal Reserve chair Jerome Powell.
Leaders from the Bank of England, the European Central Bank, the Bank of Canada, Sweden's Riksbank and others said central-bank independence was "a cornerstone of price, financial and economic stability," praising Powell's integrity after the US Department of Justice opened a criminal investigation into him over renovations to the Fed's headquarters.
Coatsworth added that "after the recent noise around the independence of the Federal Reserve, new inflation data may offer some clarity about whether there is a case for a near-term interest rate cut following mixed jobs numbers last week."
World Bank flags moderating global growth
On the economic front, the World Bank said global growth was expected to moderate slightly in 2026, with world GDP forecast to edge down to 2.6% from an estimated 2.7% in 2025, though still stronger than its previous projection.
It warned that risks were skewed to the downside if trade tensions escalated further.
Eurozone growth was forecast to slow to 0.9% this year from 1.4% in 2025, before recovering to 1.2% in 2027, while US growth was seen at 2.2% this year, easing to 1.9% by 2027.
Separately, US inflation data showed headline inflation unchanged at 2.7% in December, with core inflation at 2.6%, as housing and food costs remained elevated.
US new home sales were broadly flat in October at an annualised rate of 737,000, beating expectations, though prices fell sharply.
Munnelly noted that investors were increasingly focussed on the data outlook, with "all eyes ... on December's US consumer price index figures as economic data begins to stabilise following the government shutdown late last year."
Orsted, Whitbread among the day's winners
Among equities, Orsted surged 5.44% after a US judge cleared the Danish renewables group to resume work on its $5bn Revolution Wind project off Rhode Island, a move Munnelly said was likely to support shares.
Whitbread climbed 7.08% after the Premier Inn owner said the impact of UK business rate hikes would be lower than previously anticipated.
Coatsworth said there were "tentative signs of progress in the UK after a gloomy period," adding that "it's been a while since positive momentum has been seen across all parts of the accommodation side of the business, hence the share price jump on the news."
Germany's Symrise jumped 5.51% after announcing a 400m share buyback and progress on the sale of its terpenes business, alongside a planned non-cash impairment of around 145m.
UBS was fractionally higher, up 0.03%, following a volatile session after reports that chief executive Sergio Ermotti plans to step down in April 2027, a development flagged by Munnelly as one of the key European corporate stories drawing investor attention.
Reporting by Josh White for Sharecast.com.
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