Heat the milk, water, and butter in a small saucepan over medium heat until the butter melts and the mixture reaches 105° to 110° Fahrenheit. Remove from heat.

In a large bowl or the bowl of a stand mixer, whisk together 3¼ cups flour, sugar, instant yeast, and salt.

Add the warm milk mixture and egg to the flour mixture. Mix with a wooden spoon or dough whisk until a shaggy dough forms.

Knead the dough by hand for 8 to 10 minutes or in a stand mixer fitted with the dough hook for 5 to 6 minutes. If the dough is too sticky to handle, add more flour 1 tablespoon at a time (up to ¼ cup additional, for a maximum of 3½ cups total). The dough should be soft, smooth, and slightly tacky but not wet. Shape into a ball.

Place the dough in a lightly oiled bowl and turn to coat all sides. Cover tightly with plastic wrap and let rise in a warm place until doubled in size, 45 to 60 minutes.

Punch down the dough and divide into 4 equal pieces. Shape each piece into a ball, cover, and let rest for 10 minutes.

Preheat the oven to 350° Fahrenheit. Line a large baking sheet or pizza stone with parchment paper.

On a lightly floured surface, roll one dough ball into a 10" to 12" circle about ⅛" thick. Transfer to the prepared baking sheet. Spread ⅓ cup Nutella evenly over the surface, leaving a ½" to 1" border around the edges.

Roll out the second dough ball into a 10" to 12" circle and carefully place it on top of the first layer. Spread another ⅓ cup Nutella over this layer, leaving a ½" to 1" border.

Roll out the third dough ball and layer it on top. Spread the remaining ⅓ cup Nutella over this layer, leaving a ½" to 1" border.

Roll out the fourth dough ball and place it on top as the final layer. Do not spread Nutella on this top layer.

Place a 2½" to 3" round cutter or ramekin in the center of the dough stack. Using a sharp knife, pizza cutter, or pastry wheel, cut the dough into 16 equal wedges from the outer edge to the edge of the center circle. Keep the center circle intact.

Remove the cutter. Working with two adjacent strips at a time, twist them away from each other 2 to 3 times, then pinch the ends together firmly to seal. Repeat around the entire circle until all strips are twisted, creating 8 points.

Brush the entire surface of the star bread with the beaten egg yolk.

Bake for 25 to 30 minutes until deep golden brown and baked through the center. The bread should reach an internal temperature of 190° Fahrenheit.

Remove from the oven and let cool on the baking sheet for 10 minutes. Dust with powdered sugar. Serve warm or at room temperature.