Brand new Apple Watch and I have Blisters? What is causing this?

Blisters are usually caused by long-term friction on your skin, not material defects.

You may've worn your Apple Watch the wrong way. See this article for how to wear the Apple Watch properly: Wearing your Apple Watch

It could be the start of an allergy,it's a very common problem with silicone bands,take the watch and go and see your doctor he will know best as there are no medical experts on this forum.