Morning update

Housing starts fall

Housing starts fell 6.2% in August to an annual rate of 895,000 units, missing the Bloomberg forecast of 950,000. Building permits were also weak, dropping 8.9% to 854,000 units and south of the consensus forecast of 927,000. In related industry news, the US MBA Refinancing Index jumped 88.1% to 2300.0 as rates fell following the government takeover of Fannie Mae (FNM $0.48) and Freddie Mac (FRE $0.26 ¹). The Purchase Index was up just 2.4% to 380.4.

The current account deficit rose from $175.6 billion in 1Q to $183.1 billion in 2Q, wider than the forecast of $180.0 billion.

Insurers lead in Europe

European markets opened higher but volatility quickly ensued and the early rally faded as worries remain high in the wake of the collapse of Lehman Brothers (LEH $0.30). Traders continue to sort through the damage from the failure of the US investment bank and its potential to impact money markets, while insurers are leading to the upside following AIG's bailout, soothing worries among the company's counterparts in Europe. In particular, Swiss Re (SWCEY $48), which has tumbled 20% amid fears over its exposure to AIG, is higher. The second-largest reinsurer in the world said its exposure to Lehman totaled about 50 million Swiss francs, and it puts its exposure to AIG at 200 million francs. Axa (AXA $29), Europe's second largest insurer, is also gaining ground.

Barclays (BCS $23) is higher after announcing it plans to buy Lehman's investment banking business for 1 billion pounds, or $1.75 billion, after backing away from buying the entire firm before it entered bankruptcy. The UK-based bank called the purchase a "once in a lifetime opportunity" and plans to raise 600 million pounds from some shareholders to complete the purchase.

Russia shuts down, worst crisis in 10 years

Following an early closure yesterday, the dollar-denominated RTS Index in Russia tumbled over 6% in the first 90 minutes of trading, which followed an 11% loss yesterday, before authorities stepped in and shut down trading. The ruble-denominated Micex Index was down over 7% on top of a 17% plunge yesterday. The crash came in the wake of a soaring interbank-ruble-lending rate that followed Lehman's demise as an injection by the government of funds into the three-largest banks and attempts to allay fears by President Dmitry Medvedev failed to prevent the panic. Analysts indicated that the funds being provided by the central bank are not unfreezing the rest of the system because the cash is not trickling down through the financial markets. In addition, selling was exacerbated by margin calls.

Mixed results in Asia

The rescue of AIG lifted stocks in Tokyo by 1.2%, with banking shares pushing ahead. The Kospi Index in South Korea closed up 2.7%, and garnered support from Samsung Electronics' offer to buy SanDisk. But the rest of Asia continued to fret over the fallout from Lehman Brothers and fears over which firm might be the next to exit the scene or require government assistance. Stocks in China extended losses, losing 2.9% and finishing at a 22-month low, while Hong Kong lost 3.6%.