Political/Security Update:

	Headlines

?	Taliban to declare "Jihad" against the US if Afghanistan targeted; heightening expectations for retaliatory attacks against US targets.
?	Bush stokes unease among allies and international press with call for Bin Ladin to be brought to the U.S., "dead or alive."
?	Taliban offers to deliver Bin Ladin to a third country, likely a Muslim country.  Offer almost certain to be rejected by Bush Administration.
?	FBI arrests five additional suspected hijackers; raising expectations for further attacks
?	U.S. officials to meet with Saudi Foreign Minister in Washington; questions to be asked about involvement of sons of Saudi diplomat in attacks

	Analysis

?	Efforts by the Bush Administration to build a multilateral coalition against terrorism will have to address two key foreign policy issues: Iraq and the Israel-Palestinian peace process.  Missteps in either area could weaken the emerging multilateral coalition against terrorism and have important implications for the oil market. 
?	For a multilateral approach to work in the long term, the Administration will need to provide countries with incentives to cooperate in the anti-terrorism campaign, especially in places such as the moderate Arab states where dismantling the networks suspected of supporting terrorist groups will involve moving against internal targets. Moreover, the Administration will need to deal with the root causes that provide willing cadres to extremist groups, especially economic problems and political disenfranchisement. Dealing with all of these factors will necessitate US financial support as well as greater US imagination in dealing with lingering regional issues.

Policy towards Iraq.

?	Washington appears to be resisting attempts to broaden its attacks to include Iraq at this point, despite internal and external pressure for such action. This will be a leading indicator, assuming that no firm proof of Baghdad's involvement in the bombings is uncovered. A more aggressive US approach towards Iraq has seemed likely since July when Moscow blocked the introduction of "smart sanctions" during the last rollover of the Oil-for-Food program. 
?	However, given regional sensitivities in the Arab world to Washington's Iraq policy and the interests that states such as Russia and to a lesser extent China have in the country, the Bush Administration cannot have both a genuinely multilateral approach to anti-terrorism and an unilateral hard-line Iraqi policy. It will need to chose between one or the other. 

Israeli-Palestinian peace process. 

?	Without an equitable solution to this conflict, most experts believe that the Bush team's anti-terrorism coalition is doomed to failure. 
?	Initially, at least, the signs are not good: the Sharon government in Israel has been resistant to US pressure to rein in its aggressive policies towards the Palestinians
?	Washington's willingness to confront Israel on this issue will give a clue to its willingness to stay the anti-terrorism course and hold its broad coalition together.

Market Update:

US Equities: 
?	Next 48 hours seen as critical after yesterday's losses and Fed cut.  8750 on Dow seen as key resistance point: looking for decisive close below 8750, not just intra-day test.  Downside risk seen to 7500 if the 8750 area doesn't hold: 7500 key b/c it was the nadir of Asian crisis.
?	Two Wildcards: Company Warnings: Will the torrent continue?  (Slight positive coming out of Oracle); War: Issue remains scope, duration.
Asia Overnight:
?	Bank of Japan, with little headline opportunities to ease, but after much speculation and criticism did cut its discount rate 15bps to .1% from .25% late in Tokyo today.  The Nikkei closed up 175.47.
Europe:
?	Equities: European markets are down (as of 0630 CDT) uniformly around 2% but most of the losses were at the opening with stability since. 
?	Currencies: US$ steady in European trading with marginal gains against most currencies.  There may be uncertainty about the $ but conversations over the last two days uniformly confirm that there is no renewed confidence in the Euro.  The Swiss Franc continues to be the biggest beneficiary of the crisis.
?	Central Banking:  The Bank of England MPC decided to cut this afternoon, but only 25bps: less and later than expected.  The monthly inflation numbers complicated the picture with a higher than expected rise, rising +.4% in Aug and now +2.6% annual, rising above government target of +2.5% for the first time in 28 months.  
?	European airlines: Mirroring American counterparts' woes in today's trading: KLM issued a profit warning, Virgin cut jobs, Alitalia appealed for government assistance; all airlines are off in trading , though not as badly as in US

Infrastructure

	Nuclear Power

?	Delegates from 132 nations opened the annual International Atomic Energy Agency conference Monday with calls for tighter security - and admissions that little can be done to shield a nuclear power plant from an airborne assault.
?	The architects of the world's nuclear plants designed them more with ground vehicle - not airborne - attacks in mind. 
?	The buildings that house nuclear reactors themselves are far smaller targets than the Pentagon posed, and it would be extremely difficult for a terrorist to mount a direct hit at an angle that could unleash a catastrophic chain of events
?	U.S. experts are proposing the installation of anti-aircraft weaponry manned by military personnel who would be stationed outside the nation's 104 commercial reactors

Airlines

Attorney general John Ashcroft assigns federal agents to domestic commercial flights; said law enforcement officers believe there is a continuing threat because "associates of the hijackers that have ties to terrorist organizations may be a continuing presence in the United States."