3 Things to Watch in the Week Ahead

07/04/2014 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

As earnings season starts next week, MoneyShow's Jim Jubak is focusing on three global factors that may influence the markets.

For the week ahead, you should watch Iraq, Ramadan, and oil prices. Ramadan is the Muslin holy month. It's a lunar-based month so the exact start date can vary depending on when the new moon appears but 28, 29, 30 of June, somewhere in there depending on your local moon zone. Theory is that almost always Ramadan brings an upsurge in terrorist bombings and violence in general as various forces in Iraq try to disrupt the holidays. Theory this year is that with ISIS, the Islamic state in Iraq and Syria waging a campaign that's really designed to not just disrupt things on a terrorist level but actually conquer big hunks of territory, that there would be a major offensive, certainly an uptick in violence, Just at the start of Ramadan, ISIS declared a caliphate back to the medieval caliphate that stretched from Syria, included both Syria and Iraq, theory was, idea was that maybe this is a precursor to a move on Baghdad, possibility this is merely propaganda but in any case, the market so far has decided, the oil market so far has decided that this is no big deal after some shock about the unexpected collapse of forces fighting for the Iraqi government, after that, the theory has come to be this is not a big deal for the oil markets because all the, most of Iraq's oil production and export is to the south of Baghdad, the fighting is all north and west of Baghdad so no big deal so oil prices basically have gone up like 2.5% in June and that's not much of a move considering the level of violence in Iraq.

If, however, ISIS does indeed move into Baghdad, attack Baghdad, take Baghdad, which would then threaten the south, then I think you might see a very different reaction from the oil market. You're still going to find a lot of people who say well, even if Iraqi production is severely curtailed, the Saudis have enough capacity to up some production so it won't be a big deal. Right now the oil market is sort of poised at a technical level that would make a shift in violence, a move into Baghdad potentially a pretty big deal. We broke through, this is on West Texas Intermediate, the US benchmark, we broke through 104 to the upside that was resistance where now it's at 105. There's a sense that we could move down to 102, we could move up to 110, and I think you're seeing traders in the oil market try to decide whether they're going to make more money on the downside if we fall to 102 or on the upside as we move toward 110 and how likely those two things are so that's why we're watching Iraq. A move in oil of that kind of magnitude would probably have some effect on global stock markets, certainly on projections for global economies so this has repercussions outside of just Iraq so that's why we're watching Iraq during this Ramadan month to see what it does to oil prices.

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