By David Lawder and Andrea Shalal

WASHINGTON (Reuters) - U.S. Trade Representative Robert Lighthizer on Thursday said the world needed either a multilateral system to govern global trade or a series of bilateral agreements, but the two were in conflict with each other.

Speaking in a webcast event hosted by the London-based Chatham House think-tank, Lighthizer said that Europe's proliferation of some 77 bilateral free trade agreements (FTAs) was "one of the biggest challenges to the multilateral trading system."

He said that to revive the multilateral trading system enshrined in the World Trade Organization, there needed to be a "reset" on global tariff rates, an end to making new trade rules through WTO litigation and new ways to effectively deal with China's state-directed economic model and non-tariff barriers such as product and food safety standards.

"The FTAs, in my opinion, we should just get rid of them. We should have a multilateral system or a bunch of bilateral systems," Lighthizer said. "And to be honest, I can go either way. But we can't have people who...profess to multilateralism and then go around basically being the biggest proponents of a bilateral system."

The United States last week launched a new trade deal with Mexico and Canada and is in the process of negotiating bilateral trade deals with the United Kingdom and Kenya after activating a "Phase 1" trade agreement with China in February.

Lighthizer and U.S. President Donald Trump have long argued that bilateral trade deals were better for the United States than multilateral ones, such as the Trans-Pacific Partnership. Trump pulled the United States out of TPP on his third day in office in 2017.

Lighthizer also said that Britain's former trade secretary Liam Fox is "one of the favorites" to become the next director general of the World Trade Organization, but said there were other good candidates as well and the Trump administration is still considering which of the seven to support.

"If you say what are we looking for? Number one, we have someone who understands that we have a fundamental need for reform," Lighthizer said, adding that the WTO was at "a turning point" that could significantly shift its current form. The next WTO chief will also need to understand that China is "state capitalism," he said.

By David Ljunggren

OTTAWA (Reuters) - Canada is not considering immediate sanctions against China over its treatment of Hong Kong and does not want to escalate a dispute between the two nations, a Canadian government source said on Thursday.

Last week, Liberal Prime Minister Justin Trudeau suspended an extradition treaty with Hong Kong, banned the export of sensitive military items and said Canada could boost immigration from the former British colony after Beijing imposed new national security legislation.

Some members of the main opposition Conservative party want Trudeau to impose sanctions on Chinese officials but such a move is off the table for now, said the source.

"There are a lot of options we have at our disposal," said the source, who requested anonymity given the sensitivity of the situation.

Asked about sanctions, the source replied: "Right now it's not necessarily something that is being considered in the immediate term but lots of things can happen."

Canada-China relations froze in late 2018, when Canadian police detained Huawei Technologies Co's chief financial officer, Meng Wanzhou, on a U.S. arrest warrant.

"We're not seeking to escalate any current dispute with China," said the source when asked about the Canadian measures on Hong Kong. "It's not a question of trying to do something deliberately provocative, it's to take a step in response to a step that the Chinese took."

For the time being Canada is more focused on measures to boost immigration from Hong Kong.

Australia said on Thursday that Hong Kong students, graduates and workers in the country on temporary visas will have the opportunity to stay and work for an extra five years and then apply for permanent residency.

Canadian Immigration Minister Marco Mendocino, asked on Thursday what Canada would do, said Ottawa was exploring options but did not give details.

LONDON (Reuters) - Stress in financial markets could yet make a comeback, Britain's finance industry warned the Bank of England last month, with Brexit and global political risks auguring for a difficult end to the year.

Minutes published on Thursday from a June 2 meeting of the BoE's UK Money Markets Committee (MMC), which includes major banks, showed unease about a possible repeat of market chaos that struck in March when the COVID-19 pandemic escalated.

"While it was clear that liquidity had now returned... some members were more pessimistic about the potential recovery and noted the potential for stress to return," the minutes said.

In March, a frenzied "dash for cash" prompted investors who were normally willing to buy safe assets such as British government bonds to swap them for money held with central banks.

BoE Governor Andrew Bailey has said there was a risk that Britain's government would have struggled to raise money without the central bank's intervention to calm the market.

Minutes from the BoE's June MMC meeting also hinted at nerves about the end of the government's job-protecting furlough scheme, which is due to shut at the end of October.

"It was noted that this, in conjunction with Brexit and geopolitical risks, could make year-end challenging," the minutes said.

The world's sixth-biggest economy shrank by 25% in March and April and could be heading for its biggest fall in 300 years in 2020, with the unemployment rate on course to more than double to about 10%, according to official projections.

Under a new bonus plan announced by finance minister Rishi Sunak on Wednesday, employers will be paid 1,000 pounds ($1,256) after the furlough scheme expires for every worker who returns to their job, provided they are kept on through to the end of January.

The BoE also published minutes from an extraordinary MMC meeting on March 18, around the height of the market tensions, which showed worry about the pressure heaped on banks.

"The banking sector was facing significant balance sheet constraints, in part as a consequence of corporates drawing down on, or expected to draw down on, revolving credit facilities (RCFs)," the minutes said.

Some MMC members also asked the BoE if had planned to expand its emergency funding scheme for large companies - the Covid Commercial Financing Facility - to include the financial sector.

By Howard Schneider

(Reuters) - U.S. states that have driven a record surge in coronavirus cases may now be slipping backward https://graphics.reuters.com/USA-ECONOMY/REOPEN/yxmpjlxewpr in their economic recovery, as cellphone data shows retail visits in a clutch of high case-growth locations falling below the rest of the country.

In Arizona, Texas, Florida, Georgia and South Carolina, which had edged ahead of other states during their drive in May to reopen commerce, retail foot traffic has slipped below levels elsewhere, information from data firm Unacast showed.

The data, which covers the period through July 3, is not representative of retail sales. But it does highlight the dilemma many economists and health experts have raised from the earliest days of the outbreak of novel coronavirus: Inattention to health protocols like wearing of masks and social distancing combined with a rush to reopen businesses could lead to worse outcomes for both public health and the economy.

"A mismanaged health crisis across many states means short-term gains will transform into medium-term sluggishness as social distancing relaxation is reversed and virus fear lingers," Gregory Daco, chief U.S. economist at Oxford Economics, wrote in an analysis on Thursday. "It's now evident that the economy is entering Q3 (third quarter) with much less momentum than previously anticipated."

Oxford's recovery https://graphics.reuters.com/USA-ECONOMY/OXFORDINDEX/xklvyzdwypg index fell for the second time in three weeks on the basis of a surge in COVID-19 cases that is straining hospital capacity in places like Texas as the hot spots of the outbreak rotate from states in the Northeast to those in the South and Southwest that resisted the strictest health measures early on. Several have since begun tightening rules or imposing restrictions they initially rejected.

The result is an economic reopening that appears to be, at best, in limbo, according to an array of high frequency data and broader analyses prepared by economists and the U.S. Federal Reserve.

Goldman Sachs (NYSE:GS) indexes https://graphics.reuters.com/USA-ECONOMY/GSTRACKERS/gjnpwwxnjpw of U.S. industrial and consumer activity both edged higher during the week ended July 4, while a New York Fed index https://graphics.reuters.com/USA-ECONOMY/WEI/bdwvkaebwvm of growth in gross domestic product edged down.

The drop in the New York Fed's index may be notable because it was driven lower by the components related to retail sales and consumer confidence, NatWest Markets analyst John Roberts wrote on Tuesday.

"It doesn’t seem like a great sign that retail sales and confidence fell in a week ending with a big U.S. holiday ... It does seem likely, however, that the spike in cases and increased lockdown measures in some hot-zone states would have negatively impacted confidence and sales, as was the case last week," he said.

Graphic: Retail foot traffic, % change vs. 2019 - https://graphics.reuters.com/USA-ECONOMY/REOPEN/qzjpqegogpx/chart.png

MAGNITUDE AND DURATION

Nationally, cellphone tracking data from both Unacast https://graphics.reuters.com/USA-ECONOMY/UNACAST/jznpnzkwkpl and Safegraph https://graphics.reuters.com/USA-ECONOMY/SAFEGRAPH/bdwvkaexwvm showed retail visits were stalled or falling. Time management firm Homebase https://graphics.reuters.com/USA-ECONOMY/HOMEBASE/ygdpzwdzmvw showed employment among its small business clients hit a plateau, while clients of Kronos https://graphics.reuters.com/USA-ECONOMY/KRONOS/xlbpgobqypq, which manages employee time across a larger swath of industries, showed a drop in shifts.

In each of those cases the outcome was likely influenced by business or shift closures over the July 4 holiday weekend.

Still, another 1.31 million people filed for unemployment https://graphics.reuters.com/USA-ECONOMY/REOPEN/jznvnzkdnvl insurance in the week ended July 4, and 32.9 million people were receiving unemployment checks under all programs in the third week of June.

Fed officials looking across that data and their own models have begun sounding a more pessimistic note. In appearances this week they cited renewed nervousness among business executives, a loss of "energy" among firms and consumers, and concern that a recovery that seemed to start fast in May and June may be facing a sort of crossroads as the United States tries to resolve the tension between the health and economic risks it is facing.

"We are uncertain about two things and that’s always hard. We are uncertain about the magnitude and we are uncertain about duration," of the twin crises, San Francisco Fed President Mary Daly said on Tuesday. "Being in a risk posture that says things can get worse, or can stay this bad for a while, is important I think for all of us."

NEW YORK, July 9 (Reuters) - The Federal Reserve bought $21.685 billion of agency mortgage-backed securities in the week

from Jul. 2 to Jul. 8, compared with $22.705 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday.

In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments

on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS.

The New York Fed said on its website the Fed sold $3.6 billion in mortgage securities guaranteed by Fannie Mae (OB:FNMA),

Freddie Mac (OB:FMCC) or the Government National Mortgage Association, or Ginnie Mae,

in the latest week. It sold none the prior week.

By Caroline Valetkevitch and David Randall

NEW YORK (Reuters) - U.S. companies are preparing to open their books on a quarter that is set to show the biggest earnings fall since the financial crisis, leaving investors looking for light at the end of the tunnel.

The season unofficially begins on Tuesday with results from some of the biggest U.S. banks. Analysts expect S&P 500 companies overall to report a 44.1% drop in year-over-year earnings for the second quarter, when the coronavirus likely took its biggest toll on companies. Earnings fell 12.8% in the first quarter, according to IBES data from Refinitiv.

The first coronavirus cases in the United States were identified in January and within weeks much of the economy was shut down to slow the spread, throwing millions of Americans into unemployment. Companies across a range of industries have been dealing with the aftermath ever since.

The second quarter is expected to be the low point for earnings this year. It would be the second-biggest quarterly earnings drop in IBES data going back to 1968, trailing only 2008's fourth-quarter fall of 67%, when banks and other major lenders were hit at the height of the subprime mortgage crisis.

For a graphic on Four biggest U.S. quarterly earnings declines:

https://fingfx.thomsonreuters.com/gfx/editorcharts/qzjvqembrvx/eikon.png

"It's widely assumed at this point that earnings for Q2 are going to be pretty much a disaster," said Willie Delwiche, investment strategist at Baird in Milwaukee.

As a result, many on Wall Street are looking past this quarter's earnings results. The S&P 500 is now trading at 22 times forward earnings, well above the 19 times earnings it reached when it hit a record high in February. Overall, the index is up more than 40% from its March 23 closing low on the back of stimulus measures from the Federal Reserve and U.S. government.

Earnings are expected to turn around in 2021, but investors will be looking for signs that the profit trend is improving.

That is especially important as many companies have been pulling guidance, giving analysts and investors little information on the outlook for earnings.

Second-quarter outlooks from S&P 500 companies totaled just 62 as of Wednesday, far below the 171 average number of quarterly pre-announcements going back to 1997, based on Refinitiv data.

Moreover, in recent months, some investors had begun to speculate on whether companies globally may report earnings before interest, taxes, depreciation, amortization - and coronavirus, or "EBITDAC," which would add to the uncertainty surrounding the profit picture.

Worries have been mounting as states reopen and new coronavirus cases increase in parts of the United States, forcing some states to reverse course and shut businesses down again.

Still, another stimulus bill could boost earnings. Negotiations over a new relief bill had been expected to pick up in July.

Nicholas Colas, co-founder of DataTrek Research, said earnings expectations could be too low if Congress passes further economic stimulus this month.

Though not as bad as the second quarter, third- and fourth-quarter earnings still look pretty dire. Analysts see a 24.7% year-over-year decline in earnings for the third quarter and a 13.1% fall in the fourth, while first-quarter 2021 earnings are expected to jump 12.1%, based on Refinitiv's data.

For a graphic on U.S. quarterly profit performance since 1968:

https://fingfx.thomsonreuters.com/gfx/editorcharts/azgvorldjpd/eikon.png

All 11 S&P 500 sectors are slated to see a decline in earnings for the second quarter, with energy, consumer discretionary and industrials among the hardest hit, but utilities and technology showing the smallest declines.

Sandy Villere, a portfolio manager at New Orleans-based Villere Funds, said he is increasingly focused on companies that have the ability to give earnings and revenue projections for the second half of this year or into 2021.

"The ones that truly can't give guidance are ones that we would steer away from," Villere said.

There is a chance investors will find reasons to reward some companies this earnings season, said Sam Stovall, chief investment strategist at CFRA Research in New York, pointing to FedEx (NYSE:FDX), whose shares jumped last week after better-than-expected quarterly profit and revenue.

David Ellison, a portfolio manager at Hennessy Funds, said investors will likely continue to look past poor results as long as parts of the economy remain shuttered.    

"A tsunami hit and there's going to be a couple of quarters for them to figure it out," he said.

SAN FRANCISCO (Reuters) - The San Francisco Federal Reserve Bank, which last year hosted the U.S. central bank's first conference on the economics of climate change, said Thursday it will next week launch a series of biweekly research seminars on the topic.

The announcement suggests the potential implications of climate change for monetary, supervisory and trade policy are of concern for the Fed even as it put much of its research power in recent months into understanding and battling the coronavirus pandemic. The U.S. central bank has lagged its global peers in attention to the impact of climate change on the economy and in crafting responses.

WASHINGTON (Reuters) - The Trump administration could allow families to use federal education funding elsewhere if the local public school does not open during the coronavirus pandemic, the U.S. education secretary said on Thursday as the Trump administration seeks to pressure states and cities to fully resume in-person classes.

"If schools aren't going to reopen, we're not suggesting pulling funding from education but instead allowing families ... (to) take that money and figure out where their kids can get educated if their schools are going to refuse to open," Betsy DeVos told Fox News in an interview.

DeVos, a proponent of private and religious education who has long pushed "school choice," gave no details on the administration's plan.

U.S. schools are scrambling to prepare for the upcoming academic year as the pandemic surges nationwide, topping 3 million confirmed cases. President Donald Trump has called on schools to reopen, but there is no federal plan to coordinate the effort.

Local administrators must weigh the needs of children and families and also teachers and staff. In addition to health concerns, the economic consequences are vast. Many working parents rely on schools for child care as well as education.

Trump, who has made the economy a top issue ahead of the Nov. 3 presidential election, on Wednesday threatened to cut school funding and blasted his own administration's guidelines for schools to reopen as "impractical" and "expensive."

Later, Vice President Mike Pence said the U.S. Centers for Disease Control and Prevention (CDC) would clarify the guidance next week.

On Thursday, CDC Director Dr. Robert Redfield, asked whether the agency was taking political direction to change its advice after Trump criticism, told ABC News the agency was not revising its guidelines but would "provide additional information."

It was unclear how the administration planned to redirect federal education dollars. The U.S. Congress would have to approve any change in appropriations, which would likely face resistance by Democrats who control the House of Representatives.

House Speaker Nancy Pelosi said everyone wants to open schools "but it must be safe for the children."

Most public schools are run and funded by local governments, with supplemental funding from the federal government. State and city budgets are hemorrhaging due to the economic slowdown during the pandemic.

On Wednesday, Pence told reporters the administration would work with Congress, which is weighing another coronavirus aid package, to give states incentive "to get kids back to school."

White House spokeswoman Kayleigh McEnany said Trump wanted to tie federal funds directly to students, and not their school district if it closes.

While the highly contagious and potentially fatal disease appears to be less harmful to most younger people, its full impact on youth or their ability to transmit it remains unclear.

School administrators are weighing a variety of measures, including adjusting the school calendar and utilizing online classes, to help keep the virus in check.

But DeVos argued schools can safely re-open now, something echoed by some of Trump's fellow Republicans in Congress.

"If we can work to reopen bars, restaurants, and casinos, we can work together to responsibly open our schools and day cares," House Republican leader Kevin McCarthy said.

But health experts have said the restart of such economic activity has driven a wave of new cases, particularly in Texas, Florida and Arizona.

Maryland Governor Larry Hogan, a Republican and head of the National Governors Association, said Trump's funding threat was "unfortunate" but that he did not expect schools to lose money.

His state, he told MSNBC, would base its decision on input from scientists, teachers and parents. "We're not going to be bullied or threatened by the president."

NEW DELHI (Reuters) - The United States is in talks with India on market access for its goods in exchange for reinstating New Delhi's trade concessions under the Generalised System Of Preferences (GSP), U.S. ambassador to India Kenneth Juster said on Thursday.

"The GSP by law requires that there be some market opening measures in recipience of that preferential system, and that's what we have been trying to reach an agreement on with the government of India," Juster said at India Global Week 2020, an online business summit.

Last year, Washington scrapped India's trade concessions under the GSP programme that allowed duty-free entry to the U.S. market for up to $5.6 billion of Indian exports in retaliation for New Delhi's high tariffs and rules on e-commerce.

Juster also said India and the United States needed to move to a free trade pact.

(Bloomberg) -- Mortgage rates in the U.S. hit a record low for the sixth time since the coronavirus outbreak began roiling financial markets.

The average for a 30-year fixed loan was 3.03%, the lowest in almost 50 years of data-keeping by Freddie Mac (OTC:FMCC). The previous record was 3.07%, which held for a week. Rates have plunged as the Federal Reserve holds its benchmark rate near zero and buys mortgage bonds as part of its plan to stimulate the economy.

Analysts have argued that rates could dip below 3% this year.

Low borrowing costs have fueled demand for homes, even with the pandemic battering the economy. Americans stuck at home have been looking to trade up for more space, while a shortage of available inventory has helped prop up prices.

Social-distancing measures kept some buyers and sellers on the sidelines in recent months, but the market is bouncing back, according to Lawrence Yun, chief economist at the National Association of Realtors.

“The residential market has seen a swift rebound of activity as numerous states have begun to ease mandatory stay-at-home orders,” Yun said in a statement.

©2020 Bloomberg L.P.

(Bloomberg) -- U.S. consumer confidence cooled for the first time in seven weeks, raising the prospects of a tempering in the economic recovery as a pickup in Covid-19 infections prompts several states to dial back reopenings.

The Bloomberg Consumer Comfort Index slipped 0.4 point to 42.9 in the week ended July 5, according to data out Thursday. A measure of attitudes about the buying climate and a gauge of sentiment among respondents in the South, where outbreaks have been prominent, both dropped to three-week lows.

The pause in the overall gauge’s upward momentum since a six-year low in mid-May highlights the link between Americans’ concerns about the pandemic and the outlook for consumer spending. With some states freezing or rolling back their economic reopenings, the health concerns and uncertainty threaten to slow the recovery speed for an economy that entered a recession in February.

The CCI is 24.4 points below its two-decade high in late January and 8.2 points higher than the May low.

The gauge of personal finances also dropped last week as consumers remained cautious about their incomes. At the same time, an index of sentiment about the national economy advanced to an almost three-month high in the wake of consecutive monthly record increases in payrolls.

Further declines in consumer sentiment could add to concerns that the recent bounceback in the economy is beginning to level off. Some workers who were rehired have already been fired again amid a pause in reopenings. Concerns about the opening of schools in the fall also add to trepidation about recovery.

The comfort figures also showed the gender gap in confidence narrowed to its smallest point since March 2017 as confidence among women strengthened.

©2020 Bloomberg L.P.