Can Financial Stocks Ignore the Euro Catastrophe?

With U.S. stock-index futures up and expectations rising about America's GDP, hopes are high that the day will show an overall rise in the market. A survey of analysts by Bloomberg is predicting GDP growth of 3% annualized and a climb in household purchases of 2.4%.

Higher than expected household purchases numbers could benefit credit card companies such as Visa (NYSE: V), Mastercard (NYSE: MA), American Express (AXP), Discover (NYSE: DFS), and Capital One (NYSE: COF). Recently, COF fell on expenses due to increased loan loss provisions, and American Express declined despite higher-than-expected earnings and lower default rates. Discover, Visa, and Mastercard are trading near their 52-week highs thanks in part to greater confidence in the American consumer.

As household purchasing figures and GDP numbers come out, these companies may probably see their share value react according. Some additional stocks to look at today will be Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC), who have increasingly depended on individual consumers for their business as investment banking opportunities slide.

Part of the troubles in investing has been Europe, which is giving investors a bigger headache than ever. Today's news from the continent has not impressed investors, with opposition to Greece paying on its CDS contracts stalling talks with the Greek government. Greece is looking at €14.5 billion in bonds tied to $3.2 billion in insurance contracts for March alone. While the Eurocrats meet in Davos to iron things out and EU Economic Commissioner Olli Rehn assures the markets that a deal is "very close," doubts linger.

Analysts at the American banks who have invested in Greek debt insist that a payout on the CDS contracts could actually give investors greater confidence in the Greek bond market, whereas Jean-Claude Trichet, President of the ECB, disagrees. At the same time, if ECB props up Greek debt, it may encourage other indebted nations to demand a similar payout as national interests collide with the solidarity of the euro.

The statements by analysts and Trichet shouldn't surprise anyone, as both encourage action that would save them money. However, the sustainability of the current system demands some action, as Greek 10-year bonds are seeing yields of 33.64% and a bank bond writedown is inevitable, even if EU Financial Services Chief Michel Barnier says the EU will wait until the "worst of the crisis" has past. Such words will hardly bolster confidence in the region, as it is a tacit admission that Europe still hasn't gone through the worst.

The European crisis means that investment banks such as JPMorgan (NYSE: JPM), Citigroup (NYSE: C), and Goldman Sachs (NYSE: GS) may see share prices decline if investors get skitterish about the implications of a Greek default. There are more reasons to worry about Europe, such as Spain's rising unemployment reaching the 23% mark and increasingly unpopular Deutsche Bank (FRA: DBK) losing its former CEO at a time of heightened European uncertainty.

The European situation means that internationally exposed financial institutions will be in a weaker position than companies that have focused their activity at home, assuming that American GDP figures do not disappoint. However, that is by no means a certainty after new home sales unexpectedly dropped in December. For now, the markets are forgiving the numbers, probably chalking the numbers up to a seasonal slowdown. However, if this is a symptom of real sluggishness in the American consumer, we may see the traditional banks suffer.