In the bowl of a stand mixer (or a large mixing bowl)< combine the warm milk, warm water, sugar, and yeast. Whisk to dissolve the yeast. Let rest for 5-10 minutes until foamy.
To the yeast mixture, add the egg, salt, melted butter, and 1 cup of flour. With the dough hook attachment in place, turn the mixer to low. Add the rest of the flour, 1 cup at a time, while the mixer is running.
Once the flour is just combined, turn the mixer speed up to medium and knead for 5-8 minutes. (You can also knead the dough by hand for 25 minutes.)
Transfer the dough to a large, greased bowl. Cover with plastic wrap and let rise in a warm area of your kitchen until doubled in size, about 2 hours.
Line a baking sheet with parchment paper and set aside. Once the dough has doubled, dump it out onto a floured work surface. Roll the dough out into a large rectangle (about 14x18 inches).
Spread the Nutella over the dough in a single layer, leaving a 1/2-inch border around the edges. Sprinkle the chopped hazelnuts all over the Nutella.
Tightly roll the dough into a log, starting on the longer side. Using a sharp knife, cut the log in half lengthwise, leaving the last inch on one end intact.
Twist the two strands of dough around each other, and then form the twist into a wreath. Pinch the ends together to seal the circle.
Carefully transfer the wreath to the parchment-lined baking sheet. Cover loosely with plastic wrap and let rest until the dough is soft and nearly doubled in size, about 30 minutes.
Preheat your oven to 350 degrees F. Beat the egg yolk and water together in a small bowl. Brush the eggs wash over the top of the bread. Bake for 30-35 minutes or until golden brown.
Remove the bread from the oven and let it cool on a wire rack. Dust the bread all over with powdered sugar before cutting it into slices and serving.