Skip the small talk.
Refrain from talking about unimportant matters.
That's what I thought at first, and it may well be right: the speaker's saying 'I know you're potentially hostile, so skip the small talk.' The way to check on this meaning would be to see what the knife-merchant has just said. If it's polite, and seemingly friendly, this interpretation is right.
On the other hand, the writer may have a more limited view of the meaning of banter. This usage comes from the sports field, where a player tries to unsettle an opponent by being abusive. The original meaning of banter is shown in the player's defensive self-justification: 'It was just banter - can't he take a joke?'
But increasingly, sports commentators have endowed 'banter' with a hostile meaning. (A similar narrowing of meaning has happened to the phrase 'tired and emotional', often used to mean 'drunk'.)
So (returning to Demonglass) if the knife-merchant has just said something un
pleasant, the speaker may be thinking of the more negative sense of 'banter'.