The Chinese yuan was allowed to weaken past 7-to-1 against the dollar for the first time ever in offshore markets and the first time in more than 10 years in its onshore market.

• The move is seen as a response to President Trump's threat on Thursday to add 10% tariffs to $300 billion of Chinese imports.

Why it matters: The People's Bank of China has aggressively defended the psychologically important 7 level as a matter of policy as the dollar has strengthened over the past 3 years.

• Trump has long accused China of weakening its currency to make its exports cheaper and gain an unfair advantage in trade, though his administration has on multiple occasions declined to officially declare the country a currency manipulator.
• Chinese officials had vowed not to weaken the currency as a matter of policy, but the accelerated nature of the move overnight certainly has the look of a coordinated and sanctioned maneuver.

What's happening: The PBOC issued a statement early Monday saying the currency had weakened under the influence of “protectionist measures and expectations of further tariffs against China.”

• In addition to the weakening yuan, China’s state-run agricultural firms have stopped buying American farm goods, Bloomberg reports, "in a move that looks designed to inflame President Donald Trump. 
• "China's policy on agricultural goods from the Midwest’s 'great patriots' has been one of Trump’s loudest talking points throughout the trade spat and the news could be painful for those politically sensitive states ahead of the 2020 election."

What they're saying: "Gloves are off," WSJ's China policy reporter Lingling Wei said on Twitter. "China’s central bank doesn’t have the authority alone to let the yuan break 7. The move had to be signed off by the top leadership."

The big picture: Analysts expect Trump to hit back, and many have been speculating since last year that the U.S. could begin weakening the dollar as a matter of policy, igniting a currency war.

Wealthy investors and business owners are less worried about politics hurting their investments than they've ever been, a recent survey from international investment bank UBS shows, but mom and pop investors are feeling just the opposite.

• The U.S. political landscape "is overwhelmingly the leading concern about investing among clients," a new survey of retail investors from Charles Schwab shows. Additionally, one-third of clients believe the next economic downturn will occur in the next year.

Research analysts at Goldman Sachs expect politics will play a major role in dictating the market's winners and losers in 2020, much as it did in 2016.

Why it matters: Industries that are more exposed to government policy and regulation have outperformed the market since Election Day in 2016, analysts said in a Sunday note to clients.

• "Looking back at 2016, markets ultimately viewed Trump’s surprising win as likely to boost growth, inflation, and interest rates. Stocks that would benefit from infrastructure spending or lower regulation outperformed."
• "While we expect trade tensions with China to persist after 2020 regardless of the winner of the election, stocks that are highly sensitive to trade policy are likely to respond more strongly to the campaign and its outcome."

Axios' Felix Salmon included this 2-day chart of what happened to bond yields and stock prices on Wednesday and Thursday in his Edge newsletter on Sunday. It shows 3 things pretty clearly:

1. Jay Powell's historic rate cut, at 2pm on Wednesday, elicited only the tiniest market reaction. As Powell told Axios' Courtenay Brown roughly an hour later, the Fed did a very good job of preparing the market for the cut, which meant that everybody pretty much knew it was coming.
2. Powell's post-meeting press conference went much less smoothly. After the Fed chair characterized the cut as a "midcycle adjustment" — with the implication that he still considered the Fed to be in a tightening cycle — stocks fell sharply, only recovering when he later walked those comments back.
3. Trump's Thursday tweet announcing an escalation in the trade war with China was a bigger deal — both for bonds and for stocks — than anything the Fed did. Bond yields fell more in one day than in any session since 2009. The 10-year yield ended the day at 1.89%, lower than any point since Trump was elected in 2016.

Inverted yield curve alert: As recently as July 23, less than 2 weeks ago, the 10-year bond yield was higher than the interest rate on 3-month Treasury bills. Now, the curve is deeply inverted again. The 10-year bond closed at a yield of 1.86% on Friday, with the 3-month note at 2.06%.

• International bond markets were similarly spooked by the Sino-American trade war. The German yield curve now has negative yields all the way out to 30 years, while the Swiss curve is negative to 50 years.

A merger between the 2 largest newspaper chains in the U.S., GateHouse Media and Gannett, is expected to be announced this morning, Axios' Sara Fischer tells me.

Why it matters: The combination of the two publishing powerhouses means that a single company would own 1 in every 6 newspapers in the United States, she reported last month.

Between the lines: Shares of Gannett have soared this year while the holding company that owns GateHouse, New Media Investment Group, has seen its stock tumble into negative territory despite the S&P's strong overall performance.

• Both companies saw a major boost to their stock performance when news of the merger was first reported on July 18.
• The market clearly likes the merger, as GateHouse has a reputation for slashing costs and consolidating resources.
• However, it may be a case of buy the rumor sell the news.

The big picture: Ken Doctor of Nieman Lab reports: "The combination — which parties say will take the Gannett name and its headquarters outside D.C. in McLean, Virginia — produces a company that will likely own and operate 265 dailies and thousands of weeklies across the country. ... It will claim a print circulation of 8.7 million — dwarfing what would become the new No. 2 company, McClatchy, and its 1.7 million."