I would suspect a metal allergy. It took me a few years to figure out what the problem was with my ear piercings, but we figured out that its the metal. Even the sensitive brand earrings tend to irritate my ears, and I can't wear post earrings because the contact of the backing irritates my ears. They would get red and puffy, and hurt pretty bad when I would take out my earrings. Now I either wear the sensitive type earrings just while I'm out, or I have several pairs of gold earrings, that I can wear all day long with no problems. Definitely leave the watch off, and put some hydrocortizone cream on the rash, and it should clear up. The discoloration of the leather is probably due to the oils and sweat of your skin getting soaked up into the leather as you wear it, much as a bridle tends to change color as it ages especially if not properly cared for, because of your horse's sweat and oils rubbing into it.