European Markets Close Higher As Positive Momentum Builds and U.S. GDP Beats Expectations

European markets advanced on Thursday, continuing the positive momentum seen in the previous session. Investors were encouraged by positive economic data and corporate earnings reports.

The Stoxx 600 closed up by 0.4% across Europe, with retail stocks leading the way with a 2.2% gain. Most sectors and major bourses finished in positive territory, though food and beverage stocks bucked the trend and slid 1.8%.

This week's data showing improved business sentiment in Germany and an uptick in euro zone services and manufacturing activity has buoyed markets, prompting optimism that a recession in the region might be avoided.

On Wall Street, the Nasdaq Composite rose as traders analyzed the latest corporate earnings and fourth-quarter gross domestic product figures. The data beat expectations, providing a boost to the markets.

The U.S. economy grew at a faster-than-expected pace in the fourth quarter, according to data released by the Commerce Department on Thursday.

Gross domestic product (GDP) expanded at an annualized rate of 2.9%, beating economists' forecasts of 2.5% growth. Despite the strong quarterly performance, concerns about a potential recession remain, as economic activity has slowed down significantly in recent months.

The growth rate in the fourth quarter was slightly slower than the 3.2% pace in the third quarter.

Diageo, the world's largest spirits maker, reported better-than-expected sales for the first half of the year, thanks to higher prices and increased demand for premium spirits.

"Our top-performing products saw double-digit growth in every region of the world," Ivan Menezes told CNBC's "Squawk Box Europe." This strong performance was seen across our entire portfolio, with our most expensive products seeing the strongest growth.

The fundamentals of our consumer base are strong. People are enjoying spirits more than ever and drinking better, not more. This is good news for the future of the spirits industry.

At 10:30 a.m. London time, Diago shares were down around 6.7%.

James Morton, CIO of Santa Lucia Asset Management, has stated that the “Biden team need to look at the numbers because they obviously don’t know what they’re talking about.” This is in regards to the team's lack of knowledge on the current state of the economy.

Corporate earnings were the main driver of individual share prices in Europe on Thursday morning.

Sartorius' stock rose 8% after the company released its full-year earnings report. Diageo, on the other hand, saw its stock fall 5% to the bottom of the Stoxx 600 after its first-half results were announced.

As stocks continue to rise, some of the world's biggest financial institutions are now predicting a sharp drop in global equity markets.

Since October of last year, the S&P 500 index has risen by more than 10%. In Europe, the STOXX 600 has increased by more than 15% over the same period. These are both significant increases, indicating that the market is on the rebound.

However, according to some investment banks, those gains are now at risk as they fear the lagged effects of monetary tightening are likely to hit earnings and cause compression in profit margins this year.

Stocks in certain key sectors that are directly related to China’s reopening, such as domestic consumption and travel, have performed well in recent months.

Investors who are looking for ways to profit from the reopening of the Chinese economy may find that the stocks of companies directly involved in that process are currently overvalued. However, there are other companies that stand to benefit from the reopening of China that may be a better investment at this time. Bank of America and UBS have identified a number of these companies, which could provide a good opportunity for investors looking to profit from the reopening of China.

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The Ifo Institute's monthly survey of German businesses showed an improvement in sentiment this month. The Munich-based institute's survey is closely watched by economists and policymakers.

The group's Business Climate Index rose to 90.2 points from 88.6 points on "considerably less pessimistic expectations," a release said. Companies in the services sector also reported lower satisfaction with their current situation. However, this was still below the index's 2021 and early 2022 levels.

However, manufacturing firms signaled improved present satisfaction and future optimism, and there was improved sentiment for trade. This suggests that the manufacturing sector is starting to see some improvements, which is good news for the economy as a whole.

Clemens Fuest, president of the Ifo, told CNBC's Arabile Gumede that the expectation was that there might be a recession in the fourth quarter of '22 and the first quarter of '23. However, it now appears that the last quarter was flat.

"Although the economy may still be contracting slightly in the first quarter, the improvement in business confidence suggests that a technical recession is unlikely."

The electric vehicle industry is seeing a resurgence, thanks in part to China's reopening. According to one analyst, this trend is expected to continue into the second half of the year. This is good news for the industry, which has seen electric vehicle sales slump in recent years.

Corinne Blanchard, vice president of lithium and clean tech equity research at Deutsche Bank, has named one top stock pick.

European markets are set to open higher on Thursday, building on the positive momentum seen in the previous trading session.

This week's data showing improved business sentiment in Germany and an uptick in eurozone services and manufacturing activity has buoyed markets.

According to data from IG, the U.K.'s FTSE 100 index is expected to open 20 points higher at 7,760, Germany's DAX 80 points higher at 15,158, France's CAC up 32 points at 7,075, and Italy's FTSE MIB 94 points higher at 26,053.

Revenue for LVMH, STMicro, Diageo, Superdry, and Banco Sabadell will be released today. Italian consumer confidence data for January will also be released.