Producer price inflation data, consumer sentiment and industrial production are on tap for Friday, but traders may be diverted more by other factors, such as whether oil continues to slide.
The drama Thursday centered in the energy markets where West Texas Intermediate crude futures settled at a six-year low of $42.23 a barrel, after falling below $42, taking out the 2015 lows. Stocks put aside fears about Chinese growth and closed little changed, after two days of volatile trading following China's devaluation of its currency.
The drop in oil prices was a drag on the stock market, with the S&P energy sector tumbling 1.4 percent. But the Dow closed slightly higher, up 5, at 17,408, while the S&P 500 was down 2 at 2,083.
"It's hurting pockets of the credit market. It's hurting capital investment, but it's a huge boost to U.S. consumers and any business that uses oil," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "We never had a recession due to a collapse in oil prices. It was always a surge in oil prices."
The producer price index, reported at 8:30 a.m. ET, is expected to gain 0.1 percent, compared to 0.4 percent last month. Core PPI, minus food and energy, is also expected to gain just 0.1 percent.
"The PPI will probably have a modest increase in service type prices but probably weak commodity prices. That theme of rising service prices, falling commodity prices has been a theme going on in this country since 2011," said Ward McCarthy, chief financial economist at Jefferies.
The PPI comes as traders are picking over each piece of data for what it means to the Fed ahead of its September interest rate decision. With jobs and inflation being the most important data, there were concerns this week that China's currency devaluation and the commodities rout will add deflationary pressures. The Fed's preferred measure of inflation is the PCE deflator though markets will also keep an eye on PPI.
McCarthy has been expecting the Fed to raise rates in December, while many economists see September as a more likely date. He said the events of this week boosted the odds for the move in December.
He said the decline in the price of Chinese goods from the devalued currency and falling commodities could create global deflationary pressures. "The other thing about China is you worry it's going to trigger responses from other countries in the area, and the last thing the global economy needs is a currency war. I think that seals the deal as far as September liftoff goes. There are too many destabilizing factors already without the Fed piling on," he said.
LaVorgna, who expects a September rate hike, said the Fed will look past PPI this week. "The Fed is looking at these numbers as just placeholders until we get to the first week of September when we get August data," he said. "The Fed might look at broad trends, but the market is always going to weigh the most recent data as the most important."
BMO Private Bank CIO Jack Ablin said the market is trading on the Fed, not good news for the economy, like falling oil prices. "It should be a net positive somewhere along the line, but I think the financial markets and the economy are completely disconnected right now. Unless they come back in alignment, good news in the economy doesn't translate to good news in the financial markets. I think they're trading on the Fed because it's the Fed that puffed it up, and it's the Fed that's going to take it away," he said.
Besides the data Friday, there are earnings from JC Penney.