This could bring on the last big hoorah for Fed rate hike talk

The last big blast of data before the Fed meets next week could stir up a final debate Thursday about whether there's a September rate hike in the offing.

The most important data Thursday are August retail sales at 8:30 a.m. EDT and industrial production at 9:15 a.m. There are also weekly jobless claims, the Empire State survey and the Philadelphia Fed survey, all at 8:30 a.m. EDT, and business inventories at 10 a.m. One piece of data Friday, consumer prices, is also key.

"We'll see what the data comes out like tomorrow, to see if anybody tries again to reignite this rate hike talk, but (Fed Governor Lael) Brainard put that to bed," said John Briggs, head of strategy at RBS. Brainard on Monday was dovish in her much-anticipated comments, stressing that the Fed could be patient in raising rates.

The Bank of England meets Thursday but traders are looking more forward to the Bank of Japan and Federal Reserve meetings on Sept. 20 and 21.

Central bankers' comments and speculation about their institutions have whipped markets in recent sessions, and the BOJ meeting is creating a buzz in the U.S. bond market. Last week, the European Central Bank sent ripples through global markets when it did not reveal more stimulus, as expected.

"We're cautious until we get that behind us," said Briggs of the two central bank meetings next week. The Nikkei newspaper reported Tuesday that the BOJ may stop buying longer-duration securities, and if that happens strategists expect to see pressure on the U.S. 30-year bond.

"It takes away demand," Briggs said. Low and negative yields in Japan and Europe have driven buyers to the U.S. where yields have been higher and the Fed is getting set to raise rates. Removing longer-duration bonds from its buying program would push local Japanese investors into domestic bonds, and potentially away from some Treasury purchases.

The tone in the bond market was much calmer Wednesday after yields snapped higher Tuesday amid a weak 30-year auction and cautious market comments from major investors at the CNBC/ Institutional Investor's Delivering Alpha conference.

Though expectations are low for a rate hike from the U.S. central bank at next week's meeting, the Thursday data will still be studied for potential Fed impact. Retail sales are key in that they will show the health of the consumer, after a disappointing jobs report and ISM nonmanufacturing data showed slowing growth in services.

Economists expect retail sales, ex-autos to be up 0.2 percent and down 0.1 percent on the headline, according to Thomson Reuters. That compares to flat sales in July and a decline of 0.3 percent for sales ex-autos.

Most economists believe the Fed is sidelined until December, but Barclays' chief U.S. economist, Michael Gapen, says September is possible for the second hike in 10 years and it's a closer call than most investors believe.

"Barring a massive number, the decision is kind of already set in stone," said Gapen. "The retail sales, even if it's a super strong number, I don't know if it has any bearing on the context of the meeting."

Gapen expects a stronger-than-consensus jump of 0.6 percent in core retail sales, which excludes autos and volatile gasoline. "The ex-autos and core should be pretty solid. The other key one for us is industrial production. We're looking for that to be flat on the month," he said. "If it's a super-weak reading than it's probably consistent with what we saw in the ISM report the other day. In general, all we need for our forecast to be realized is manufacturing to stabilize and energy to stabilize."

Treasury yields were slightly lower Wednesday, with the 10-year back under 1.70 percent in late-afternoon trading. The 2-year Treasury note was yielding 0.75 percent.

Stock were mixed, after big swings in both directions in recent sessions. The Dow fell 32 to 18,034, while the Nasdaq rose 18 to 5,173, helped by Apple, rallying in its best session since July. The S&P 500 dropped 1 point to 2,125.

John Kosar, chief market strategist at Asbury Research, has been looking at the flow of money in and out of ETFs which show investors are now making a new directional bet on long-term rates. He said prices are declining for TLT, the iShares +20 Year Treasury Bond ETF, but net assets are expanding in TBF, the ProShares Short 20+ Treasury ETF.

"It's a bearish bet on Treasury prices. That's an inverse fund. Money is going into it over the last few days, and it's a bet that long-dated Treasurys are going down. It's a short-term indicator," Kosar said.

Kosar said that's not necessarily a bad omen for equities. "In my opinion, if rates are going higher, knee jerk obviously is bad for stocks. But bigger picture, how I look at that is, if I'm a stock market bull I would much rather see (10-year) rates at 2 percent or 1.90. ... At 1.90, the Fed and the bond market are expecting recovery of some kind," he said.