In a small saucepan over medium-low heat, warm the milk until small bubbles appear at the edges, but it is not simmering. Set aside and let cool to room temperature.

In the bowl of a stand mixer fitted with the paddle attachment, combine the water, yeast and sugar. Let sit for 5 minutes until it becomes foamy. Add the milk, olive oil and salt and mix on medium speed for 10 seconds. Add the flour, 1 cup at a time, until the dough is shaggy.

Change the paddle attachment to the dough hook. Knead the dough on medium speed for 5-7 minutes until smooth and elastic.

Place the dough in a large bowl greased with non-stick cooking spray. Cover with plastic wrap and let rise for 1 – 1-1/4 hours until it has nearly doubled in size.

For the pesto, mince the garlic in the food processor. Add the basil, Parmesan, lemon zest and pine nuts. Puree the mixture and while the motor is running, drizzle the olive oil through the feeder tube until fully combined.

Line a sheet pan with parchment and side aside. Cut (2) 9-inch by 12-inch pieces of parchment.

In a small bowl, whisk together the egg and 1/2 teaspoon water.

Divide the dough in half and then cut each half into 3 pieces. Roll out each piece of dough into a rough 8-inch square. Spread about 3 tablespoons of pesto leaving a 1/2-inch border. Brush egg wash on one of the long exposed edges and roll into a tube. Pinch the seam closed and roll until it is about 10 inches long. Repeat until you have 6 tubes, 3 for each loaf.

Layout 3 tubes on a piece of parchment. Using a sharp knife, slash a series of diagonals down the length of the tube. You should cut halfway through, but not all the way to the bottom.

Braid the loaves starting at the center. Tuck the ends underneath. Transfer to the prepared sheet pan and repeat for the other loaf. Cover with greased plastic wrap and let rise for 30 minutes. Preheat the oven to 400 degrees F.

Brush the loaves with the remaining egg wash. Bake the bread for 10 minutes before reducing the temperature to 350 degrees F. Bake for an additional 30-35 minutes until the loaf is golden brown and it sounds hollow when tapped.